3 Steps to Find Cheap Growth Stocks

3 Steps to Find Cheap Growth Stocks

Stocks on Sale

111stocks-on-saleMarket downturns can provide great buying opportunities. Let’s look at a time-tested method to find some attractive companies with lots of upside potential.

When looking for reasonably priced growth stocks, I often use the PEG ratio as one of my key metrics.  According to investopedia, a PEG ratio is “A stock’s price-to-earnings ratio divided by the growth rate of its earnings for a specified time period.”

I like the PEG ratio more than just using a P/E ratio (price to earnings) because the PEG ratio also takes a company’s earnings growth into account.

Here is a three-step process I use to find growth stocks on sale:

  1. Look for stocks with a PEG ratio under 1.00.  These are stocks selling a deep discount compared to their growth potential
  2. Look for stocks with 1 year expected earnings growth above 33%. I love fast growing companies expected to grow quickly over the next 12 months.
  3. Look for stocks with 3-5 year expected annualized earnings growth above 17%.  I also want companies that are expected to grow over the next 3-5 years and 17% would allow earnings to double within six years or less

Using these key metrics, here are three cheap growth stocks as of 2-18-15:

1 Yr Projected

3-5 Yr Projected

Company Name Symbol Industry

Price

P/E

PEG

Earnings Growth

Earnings Growth

AVAGO TECH. AVGO SEMICONDUCTORS

109.70

16.50

0.94

46.68%

22.10%

AKORN INC. AKRX GENERIC DRUGS

47.14

25.50

0.97

68.31%

69.75%

SKYWORKS SOLUTIONS SWKS SEMI-RADIO FREQ

82.59

18.27

0.89

60.57%

24.37%

Avago Technologies Limited (AVGO)engages in the design, development, and supply of analog semiconductor devices with a focus on III-V based products. Its product portfolio comprises RF amplifiers, RF filters, RF front-end modules, ambient light sensors, light emitting diodes, low noise amplifiers, mm-wave mixers, optical finger navigation products, diodes, fiber optic transceivers, serializer/deserializer ASICs, motion control encoders and subsystems, optocouplers, and optical mouse sensors. The company’s products are used in cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, renewable energy and smart power grid, factory automation, displays, optical mice, printers, voice and data communications, keypad and display backlighting, backlighting control, base stations, storage area networking, in-car infotainment, lighting, motor controls, power supplies, and optical disk drives applications.

Akorn, Inc. (AKRX) manufactures and markets diagnostic and therapeutic pharmaceuticals in specialty areas such as ophthalmology, rheumatology, anesthesia and antidotes, among others. They also market ophthalmic surgical instruments and related products. Customers include physicians, optometrists, wholesalers, group purchasing organizations and other pharmaceutical companies. They also provide contract manufacturing services.

Skyworks Solutions, Inc. (SWKS) is the industry’s leading wireless semiconductor company focused on radio frequency (RF) and complete semiconductor system solutions for mobile communications applications.

Bottom Line: The PEG ratio is not an end all solution, but it does help you find attractively priced growth stocks that could help your portfolio outperform the markets over the long-haul.

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5 Fast Growing Sectors in 1 Stock

Gain Exposure to 5 Fast Growing Sectors through One Stock

GROWTH 

This fast growing innovative company gives investors 5 strong reasons to consider investing in its future.

When I look for investments I primarily look for companies that are innovators and industry leaders. When I find a company that has a stronghold in many different industries it really gets me excited.

Last year, I found a company that was doing some exciting things in some of my favorite fast growing sectors.

Consider this, the company has exposure to:

  1. Materials Science: Innovative materials play essential roles in clean energy, transportation, human health, and industrial productivity.
  2. Electronics:  A revolution in high productivity TEM imaging, analysis and metrology. Consumer demand is driving the electronics market to produce faster, smaller, cheaper, more power efficient portable devices. Device manufacturers must place a high premium on both time-to-market and device performance.
  3. Life Sciences: Basic life processes start in the cell. To understand how cells function and respond to disease or genetic variations, life scientists engage in cellular and structural biology research.
  4. Natural Resources: This company automate mineralogy workflows to transform productivity for mining and oil and gas customers by delivering relevant answers when, where, and how they are needed.
  5. Industrial Manufacturing: Optimize quality control with automated, industrialized processes. It has a collection of scanning electron microscopes for industrial microscopy solutions, which help to improve quality control, production capacity, and profitability.

The company I am referring to is FEI Company (NASDAQ: FEIC).  It was founded in 1971 and is now a leading diversified scientific instruments company. The company has over 60 years of experience that enables them to set the performance standards of its industry.  FEI has sales and service operations in more than 50 countries.

FEI Company is a leader in the design, manufacture, sale and service of products based on focused charged particle beam technology. By combining a focused ion beam and an electron microscope, the company has developed a dual beam system that allows the company’s equipment to provide three-dimensional imaging. The DualBeam and other company products deliver a range of structural process management applications for the Semiconductor integrated circuits, Data Storage and Industry and Institute markets. The major markets that FEI services (electronics, material sciences, natural sciences, and life sciences) all currently present opportunities for revenue growth and increase in market share.

From a 5 point-stock inspection point of view, FEI looks strong:

Financial Strength:             Positive – Very strong balance sheet

Momentum:                                      Positive – Showing strong relative strength

Valuation:                             Positive – Good buy up to $100

Earnings:                               Positive – Rated in top 10% currently

Risk:                                       Neutral – Medium risk 1.4 beta

Bottom Line: FEI Company (FEIC) is a good buy up $100/share.  My 12-month price target is $125, representing a 30% potential gain from current levels.

 

A Look at My Favorite Sector

A Look at My Favorite Sector

This is by far my favorite sector…

By Jay Peroni, CFP®

 

Last week I racked up a couple of huge wins in a couple of my portfolios. Forest Labs was up 27% in a day while Chelsea Therapeutics soared 30% the next day. Both stocks were in my favorite sector and in one of my favorite portfolios.

Investors often ask me what my favorite sector is.  It takes me less than a second to answer because my favorite sector continues to be health care.  In fact at Faith-Based Investor & Wall St. Renegade, I manage 15 different strategies ranging from conservative to aggressive and my health care portfolio has been the biggest winner by far through the end of February.  As of the end of February the portfolio is already up over 31% this year and rose almost 15% in February.

Health&Life

The Health & Life Portfolio is up 95% since in was created in Dec of 2012. Now the portfolio invests in a combination of large and small cap health care stocks and has great potential as Obamacare expands and investors continue to bid up promising companies providing life saving cures.

One company from the portfolio that is a larger company with huge potential is Shire Plc (NASDAQ: SHPG). Shire is an Ireland-based specialty biopharmaceutical firm with six business units: rare diseases, neuroscience, gastrointestinal, regenerative medicine, internal medicine, and a research & development group. It is focused primarily on two therapeutic areas: central nervous system disorders and metabolic bone diseases.  It has fueled growth over the past 18 years through strong product development and major mergers and acquisitions as its completed 12 major acquisitions and continues to grow by leaps and bounds.

Here are three reasons I believe this stock will be a long-term winner:

  1. Its ADHD drug (Vyvanse) is experiencing strong growth in both pediatric and adult ADHD markets with double-digit growth in the U.S. combined with strong pricing power.
  2. As it expands into the European markets growth could be furthered as its ADHD drug and its treatment for binge-eating disorder could have strong sales.
  3. Outside of ADHD, Shire’s rare-disease business and growing sales for many of its other drugs offer stability and diversification. In other words this isn’t a one trick pony!

When I look at it using my 5-point Stock Inspection, Shire ranks favorably in all 5 categories:

5-Point Stock Inspection on SHPG:

 

Financial Strength:                      Positive – Very Strong

Valuation:                                         Positive – Buy up to $200

Momentum:                                     Positive

Risk:                                                     Positive – Low Risk

Earnings Trend:                            Positive

12-month price target:               $230-$240

 

Take a look at its chart:

shpg chart

 

Bottom Line: Shire PLC (SHPG) is a good buy up to $200/share. My 12 month price projection is $238, representing a 40%+ gain from current levels. If you would like to get in on the Health Care Portfolio, give me a call today at 866-594-9919.

This Airline Stock is Primed for Take Off

This Airline Stock is Primed for Take Off

Many investors have overlooked the travel industry and are missing out some nice gains. Airline stocks have had a good run recently and I expect that trend to continue…

In case you haven’t noticed, airline stocks have been red hot. With the economy improving, consumer sentiment rising, and an increase in leisure spending, the travel industry has seen a boost.  The travel forecasts for the next few years looks pretty bright as well.  As the economy continues to recover and consumers have more money to spend, the travel industry, especially the airlines should continue to see impressive growth.

I recently added an airline stock to my Tomorrow’s Treasures Portfolio.

This company recently raised its fourth quarter earnings guidance easily trumping analyst expectations. Better yet, I expect it to post double-digit earnings growth in 2014 as well.  The reason I like really like this airline over its competitors is the fact that it is a small company with lots of growth potential.  It caters to low-cost travelers and offers a $9 Fare Club program that is just $59.95 per year and on average its customers save over $75 per booking.  The program provides access to reduced fares as well as other travel deals.

save logoThe company I am referring to is Spirit Airlines (NASDAW: SAVE). Spirit operates approximately 250 flights to 50 travel destinations in the United States, the Caribbean and Latin America.  It is also one of the few airlines that travel from the U.S. to Panama and Colombia, two travel destinations that are becoming more popular. Take a look at the chart:

save chart 

The stock had an impressive run in 2013 and it’s just getting started!

 

Its next earnings report is in February and Spirit has a stellar record of positive surprises. Since it went IPO in 2011, it hasn’t missed earnings. Even though its share price has soared its valuation is still reasonable.  It has a forward P/E of just 16.4, compared to an industry average of 22.5.  With its impressive earnings growth and relatively low P/E, the stock presents both a good value and great growth potential.

Here is my 5-Point Stock Inspection on SAVE:

Financial Strength:            Positive

Valuation:                                     Positive – Buy up to $55

Momentum:                         Positive

Risk:                                     Neutral

Earnings Trend:                          Positive

12-month price target:      $65-$70

 

Bottom Line:

Spirit Airlines (NASDAQ: SAVE) is a good buy up to $55 per share. My 12-month price target is $65-$70, representing a 30-40% potential gain from here.

 

Need help with your investments?

Jay can help you map out your investments and help you set up a plan to achieve your goals! Give Jay Peroni, CFP® a call today at 866-594-9919 for a FREE 30 minute consultation.