If you look out into the middle of the decade, then you can make the case for an increasingly robust economic growth that could fuel heady top- and bottom-line gains in a number of sectors.
But we're not there yet.
Recent economic signs point to an eventual economic brightening, though there are enough boulders in the U.S. economy's path that could derail an economic expansion.
So perhaps it's wiser to focus on companies that are poised for solid growth in 2013. Out of all the of the companies in the S&P 500, 91 (or 18%) are expected to boost sales by at least 10% this year. And of those firms, 72 are expected to boost per-share profits by at least 15% in the coming year.
A cluster of them reside in sectors that have already received a great deal of investor attention recently, so they can't be seen as solid values in the context of projected 2013 results any more. Housing stocks, for example, fit into this category.
Instead, value investors may prefer to focus on stocks that have solid growth prospects, but sport forward price-to-earnings (P/E) multiples below the S&P 500 average of 15. Fewer than 20 companies in the S&P 500 sport these above-cited growth prospects, while trading for less than 15 times projected profits. Notably, roughly half of these stocks operate in the energy sector.
The drilling boom
We've spent a lot of time at StreetAuthority looking at the revolutionary developments in the U.S. shale regions. The nation's new-found troves of natural gas are completely changing the nation's energy picture. But investors should understand that an energy boom is underway worldwide, from the coasts of South America and Africa to the Arctic Circle and the steppes of Kazakhstan. The spread of oil exploration beyond the traditional hubs of the Middle East explains why energy producers and service-equipment providers that have a global footprint are sporting solid growth metrics in 2013.
Global growth is in place for many energy stocks
Companies that toil in the energy sector have never garnered a high P/E ratio. That's because growth has tended to be erratic, with robust growth phases followed by industry downturns. Yet those downturns have proven to be short-lived, so the argument for a low multiple now seems less warranted. Take a look at the annual sales growth rate for energy-service provider Schlumberger (NYSE: SLB). Though the company has made some acquisitions that have boosted sales, organic growth has been quite solid as well.
Although the world is awash in oil and gas, much of it lies in remote locations, which increases the demand for the services and equipment offered by companies such as Schlumberger, Cameron International (NYSE: CAM), Rowan Cos. (NYSE: RDC) and Ensco International (NYSE: ESV). Investors may still think of this as a deeply cyclical industry, but the past decade, along with current growth drivers, implies steady solid growth, not just in 2013, but beyond.
But the list of low-priced, solid-growth stocks doesn't include just energy companies. A handful of other companies also make the cut. Leading the way is a once-loved, but now controversial growth stock.
All eyes on Apple (Nasdaq: AAPL)?
After Apple's 22% plunge in the past three months (wiping out a seemingly unprecedented $125 billion in vanished market value), investors are closely watching its earnings report this Wednesday, Jan. 23, for signs that growth is slowing. After boosting sales at a stunning 44% annualized rate from fiscal (September) 2004 through fiscal 2012, a slowdown was inevitable. The question is by how much? Investors question whether growth will slow into the single-digits in coming years, or remain in the teens. If it's the latter, then this stock could easily move back toward the $700 mark. (Roughly a month ago, I laid down the case why Apple still has plenty of growth drivers.)
If shares move sharply lower on the heels of conservative guidance, then you should be prepared to quickly assess the company's still-impressive growth strategy. Chances are, any deep pullback will eventually bring out the deep-value investors who have been on the sidelines in recent months.
The SanDisk trade
On the same afternoon that Apple weighs in, memory device firm SanDisk (Nasdaq: SNDK) will weigh in with results. Analysts at Merrill Lynch expect very strong results. Yet it's the forward outlook that may make this a very timely trade for investors who want to jump in before results are released. Analysts at Merrill Lynch cite a looming increase in gross margins (from 32% in 2012 to 46% in 2013) thanks to improvements in the company's manufacturing processes.
And these analysts suspect that the rest of Wall Street may not yet grasp this trend, which management is likely to discuss on the conference call this Wednesday. The consensus 2013 earnings forecast for Sandisk is around $3.50 a share, while Merrill Lynch suspects that per-share profits will exceed $4.50. And they see earnings power exceeding $6 a share in 2014.
Risks to Consider: The energy service stocks discussed earlier are always vulnerable to a sharp pullback in global oil prices. That's an unlikely scenario at the moment, but could become a factor of major global economies stumble anew in 2013.
Action to Take –> These aren't the stocks in the S&P 500 that have the most robust 2013 growth prospects, nor are they necessarily poised for market-beating upside. But their reasonable valuations and clear operating momentum means they will likely move up in a rising market, yet hold their own in a more challenging market.
– David Sterman