More from Navellier for you today — I covered several of his growth picks last week in response to one of his Blue Chip Growth teaser campaigns, and now I’m getting to a few more.
If you want to see the intro to this series, and the first few picks, just check out that original article here…
… but time is short today, so we’ll jump right into the teased picks:
“Top Stock #4: Monster Growth from a Boring Business
“This next stock is shaping up to be one of the biggest comeback stories of 2015. The stock lagged for most of this bull market, but a new CEO’s bold moves are paying off in a big way.
“He sold off one the company’s major— but under-performing—brands. He spun off hundreds of properties into a publicly traded REIT. And he used the proceeds from those moves to pay down $1 billion in debt!
“And the results have been outstanding! The stock delivered some of the biggest sales per share growth of ANY S&P 500 stock in the second quarter earnings season—up 19%.
“It crushed earnings estimates too, posting a big 8.6% earnings surprise. Earnings per share jumped a whopping 26% year-over-year quarter! And that’s on the heels of an 87% leap in adjusted earnings in the company’s fiscal 4Q.
“The company is expecting another year of monster growth and just raised its earnings outlook. Management is now calling for 20- 25% adjusted earnings growth!
“But Wall Street apparently hasn’t noticed yet. Which is great for us, because the stock is dirt cheap right now, especially given the double-digit growth it’s delivering. You can snap it up today for just 13 times earnings!
“As an added bonus, it pays a hefty 3.1% dividend yield—more than triple the income you can get from a money market!”
This one is Darden Restaurants (DRI), which you might know of because of their recent kerfuffle with activist investors from Starboard Value and elsewhere — they sold off their Red Lobster chain, and they’re trying to make a comeback on the strength of the Longhorn Steakhouse brand and a turnaround at Oliver Garden, which has had at least some traction over the past year (partly because of lower gas prices providing more middle-class disposable income, the theory goes).
Their latest plan to unlock value is spinning out most of the great many properties they own into a REIT, which many chains in various industries have used to “unlock” property values that were previously hidden on balance sheets. This is obviously a little bit dangerous to the core business, since it means you lose the flexibility of controlling your own rents and properties in what is typically a pretty low-margin business, but it can certainly improve valuations — at least in the short term.
I’d be inclined to think that the great gains made by activist investors in this one are done — the pressure from Starboard and the changes made, including the new CEO and the asset sales, have helped the shares go from the $50 neighborhood, where they were stuck for five years, up to the low $70s… but you can see the rising growth expectations, estimates are rising for this year and next year and they have beaten analyst estimates quite handily over the past four quarters (including that 8.6% beat cited by Navellier, which was a quarter ago, and the more recent 17% beat for the August quarter).
From now, it’s not unlocking value that matters but a real operational turnaround and a return to growth — the analysts are penciling that in, but I’m a bit skeptical… maybe that’s just because I don’t like these cookie-cutter “casual dining” restaurants that surround every mall in America, so perhaps I have a blind spot there. Let me know if you think I’m being too cynical about the breadstick king.
“Top Stock #5: Double-Digit Growth by Beating Wal-Mart at Its Own Game
“Wal-Mart has built a global empire on a simple premise—offering customers low prices. But this next company is mounting a strong challenge to the 800-lb gorilla. It now has more locations than any other retailer in America and has big expansion plans that include opening more than 500 new stores in 2015 and even more in 2016.
“But unlike Wal-Mart, this company’s stores all are located in the U.S, meaning almost 100% of its sales are domestic. As we’ve been discussing, that’s a huge advantage over global competitors who have to contend with a strong dollar eating into their profits.
“The company has carved out a niche for itself by focusing on small to mid-sized communities that are underserved by big box stores like Wal-Mart. Wal-Mart has noticed, and even admitted that this upstart is a real threat.
“Net income in Q1 was more than twice that of their closest rival.
“Same store sales were up a healthy 3.7% over the past four quarters. And analysts expect the company to deliver double-digit annual earnings growth and 8-9% sales growth in 2016 AND 2017.
“Despite a major investment in opening new stores and remodeling 800 existing stores, the company is still committed to rewarding shareholders as well. Since December 2011, the company has been aggressively buying back stock to the tune of $2.3 billion. And management just announced that the board has increased the share repurchase program from $200 million to $1.2 billion.
“On top of that, it is has implemented a quarterly dividend of 1.2% (which I expect to see rise in 2016).
“The stock has had a strong run—almost doubling the Dow over the last 5 years. But it is still cheaper than all but one of its rivals.”
This one’s Dollar General (DG). Which I know next to nothing about. They have been re-starting their ambitious growth strategy over the last year or so, they have been remodeling stores and buying back stock. For what it’s worth, Dollar General was just recently downgraded by Navellier from A to B, as you can see here, so perhaps this one’s lost a bit of its growth luster in his eyes… sometimes the ads get a little stale by the time they’ve been reviewed by all the lawyers and rewritten by the copywriters, I guess.
“Top Stock #6: Market-Beating Gains from Two Unstoppable Trends
“Over the last five years, the healthcare sector has rocketed 164%. It has trounced every other sector and has significantly outperformed the market (the S&P 500 is up 97% the last five years). That’s a trend I expect to continue in the years ahead, and that’s why I have a second healthcare play at the top of my buy list.
“Two of the fast-growing segments in the healthcare market are prescription drugs and senior care. This company has set itself up to profit from both for years to come.
“First, the company announced a big acquisition in May that will make it #1 provider of pharmaceutical services to nursing homes in the U.S. The number of people 65 or older is expected to soar 80% in the next 15 years. This is a brilliant move that taps into the explosive growth ahead for assisted living facilities. This acquisition alone should add $0.20 to EPS next year. But management didn’t stop there…
“In July, they announced a huge deal with one of the biggest retailers in America. The almost $2 billion dollar deal is a brilliant way to greatly expand the company’s store space at about one-fifth the cost.
“The company posted +5.5% Q1 earnings surprise, marking 16 of last 18 quarters it has delivered an upside surprise. It also beat revenue estimates, delivering an 11% increase thanks in part to a huge 18% jump in pharmacy sales.
“I’m looking for double-digit sales and earnings growth the rest of 2015. You’ll be thanking me for this one for years to come.”
This one is CVS Corp (CVS), which bought Omnicare to expand into nursing home pharmaceutical distribution recently and which has been the hot ticket in the drugstore/pharmacy benefit manager market for several years. Over the last several years, CVS stock has acted somewhat like a leveraged play on healthcare, reacting to the same basic market forces as the big pharmaceutical, medical equipment and insurance/hospital stocks that dominate the healthcare indices, but moving up more sharply on the up days… there haven’t been so many down days for healthcare over the last five years, so it remains to be seen whether the stock will take a substantial tumble as biotech stocks are hurting, but so far it’s been more resilient than the broad healthcare segment during this most recent downturn.
So, there’s not a lot to dislike about CVS… other than the valuation, which doesn’t tend to get Navellier too worried most of the time. For a Navellier stock, the growth is quite tepid as of the most recent quarter… but analysts are still projecting 15% or so earnings growth for the next several years, so if that comes through the stock is certainly reasonably valued. CVS has been A-rated in Navellier’s system for more than a year now, during which it has gone from $80 to $115 back to $95 or so.
Any of those sound interesting for you, intrepid Gumshoe readers? Let us know with a comment below.