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.
High-growth technology stock
If you really want to be aggressive, you can consider Facebook Inc (NASDAQ:FB). It doesn’t pay a dividend but continues to grow at an amazing rate. Despite hitting a new all-time high, Facebook is still reasonably valued.
At US$132 per share, it trades at a P/E of 36.3. Analysts expect it to grow its EPS by 34.7-35.1% per year in the next three to five years.
If Facebook is anticipated to grow at such a monstrous rate, why isn’t it priced at an even higher multiple? Well, no company can grow at a super high rate forever. Additionally, a new social media platform or a disruptive technology can reduce the time spent by Facebook users on the platform.
For the time being, though, Facebook continues to deliver great growth. In the second quarter, its advertising revenue was US$6.2 billion, which was 63% higher than it was a year ago!
This amazing growth was driven by a 17% growth in daily active users and 15% growth in monthly active users. As well, mobile monthly active users increased by 20%, helping to drive a 76% growth in mobile advertising revenue.
Cautious investors should look for a dip in Facebook before buying.
High-growth materials stock
Believe it or not, materials companies can be high growth, too. Stella-Jones Inc. (TSX:SJ) produces and sells pressure-treated wood products and related services in North America. Specifically, it sells railway ties to railway companies and utility poles to electrical utilities and telecoms. These companies have a steady demand for Stella-Jones’s products as they replace old wood to maintain a safe and smooth service.
Since 2005 Stella-Jones has made accretive acquisitions with a high return on equity (ROE). In each of the last five years, it has maintained a high ROE of 16-18%.
Stella-Jones’s recent acquisitions have allowed it to expand its residential lumber revenue to exceed its utility poles revenue in the second quarter. So, in addition to railway ties and utility poles, the company now has a third main product category.
Stella-Jones trades at C$46 per share and a P/E of 19. It only yields 0.9%, but it has increased its dividend for 11 consecutive years at a rate of 26% per year. Analysts believe Stella-Jones can grow its EPS by 25% per year in the next three to five years.
Since most folks have limited capital to invest given other obligations and interests in life, allocating a portion for high growth can allow your portfolio to grow much faster. CVS, Facebook, and Stella-Jones are quality high-growth companies priced at decent valuations to consider for your diversified portfolio today.
If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.Disclosure: At the time of writing, I own shares in CVS, FB, and SJ.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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