Buying high-growth stocks can double your money faster. And now’s your opportunity to buy three such stocks at great valuations.
Since the stock market returns 10% (inflation included) on average, I consider high-growth stocks as companies which are expected to grow their earnings by more than 10% a year.
High-growth healthcare stock
CVS Health Corp (NYSE:CVS) was founded in 1963. It is one of the largest pharmacy benefit managers in the United States with nearly 80 million plan members.
Additionally, CVS is diversified by its more than 9,600 retail pharmacies, more than 1,100 walk-in medical clinics, and dedicated senior pharmacy care business which serves over one million patients a year.
After hitting an all-time high of US$112 per share and an outrageous price-to-earnings ratio (P/E) of about 23 in July 2015, CVS’s shares are finally trading at a decent valuation. It trades at a P/E of 15.3 at about US$87 per share.
Although CVS only yields 1.9%, it can continue growing its dividend per share (DPS) at a double-digit rate like it has for the last 11 consecutive years.
Its payout ratio is only 29% and coupled with growing earnings, its dividend is very safe. Analysts expect it to grow its earnings per share (EPS) by 12.2-14.4% per year in the next three to five years. Read More
Why is the yield on cost a “feel good” metric? What does buying at the right valuation have to do with company quality and the yield on cost? What’s more important than tracking the yield on cost?
For periods of time, the yield on cost (“YOC”) has been used as one of the favorite metrics in the Dividend sections of Seeking Alpha. However, it can be misleading.
How do you use the yield on cost metric?
A common usage of yield on cost is to illustrate how a quality company has consistently increased its dividend over time. I acknowledge that the YOC is great for showcasing that.
If you invested in Amgen (NASDAQ:AMGN) five years ago, you would have started with a yield of almost 2% and would be sitting on a YOC of nearly 7%. Your total rate of return would be 203%, equating an annualized gain of 25%.
From the FY2011 to 2015, Amgen compounded its EPS by 18.1% per year and its dividend by 54.1% due to growing its earnings and expanding its payout ratio.
Dollar General and Dollar Tree has had meaningful dips of more than 18% after their Q2 results. What could be the reasons behind the big drops? Are they priced at attractive valuations or should you avoid them altogether? If they’re attractive, which is a better buy today?
Both Dollar General Corp. (NYSE:DG) and Dollar Tree, Inc. (NASDAQ:DLTR) released their Q2 reports on August 25. The results caused Dollar General to drop 17.6% and Dollar Tree to fall to a smaller extent of 10% from the previous day’s close.
However, since August 26, Dollar General’s price action has more or less aligned with that of Dollar Tree’s. So, the Q2 results seems to have had a bigger impact on Dollar General than on Dollar Tree.
What were the Q2 results?
Dollar Tree had higher growth in same-store sales and net sales compared to Dollar General. Dollar Tree’s acquisition of Family Dollar really boosted its net sales growth.
Even after expanding its pie by acquiring Family Dollar, Dollar Tree still posted lower sales and net income than Dollar General. Dollar Tree’s Q2 net sales and net income were $5 billion and $268.2 million, compared to Dollar General’s $5.39 billion and $307 million. So, Dollar General had a higher profit margin than Dollar Tree (5.7% compared to 5.36%).