How do you find growth stocks to buy?
If you’re like me, you probably have a hundred different ways to find new investment ideas. I get ideas from all kinds of different places. I can be walking down the street and see an interesting crane at a construction site, and I’ll take a picture of the brand name and then when I’m at home, I’ll find out if it’s a publicly traded company.
Recently, I happened to get an email from Innovator ETFs about its newest product, the Innovator Loup Frontier Tech ETF (NYSEARCA:LOUP). While I wasn’t particularly interested in this ETF, another of its products caught my eye — the Innovator IBD 50 ETF (NYSEARCA:FFTY) — and I was off to the races.
Early on in my investment education, I would buy a copy of Investors Business Daily each weekend and then scour the paper looking for investment ideas. I don’t spend a lot of time reading IBD these days, but when it comes to growth stocks, they’ve always been considered one of the go-to resources for anyone searching for growth stocks to buy.
So, when I saw FFTY, I just had to write about seven of its holdings.
Growth Stocks to Buy: PGT Innovations (PGTI)
Source: Pixthree via Flickr (modified)
I had never heard of PGT Innovations (NASDAQ:PGTI) until writing this story, but when a stock is up 47% year to date, I just have to take a closer look.
It turns out that PGTI makes hurricane-resistant windows through its CGI Windows & Doors subsidiary in Hialeah, Florida.
When my wife and I were planning our move from Toronto to Halifax last Christmas, we spent a few days in our new hometown looking for a place to rent. The house we eventually settled on had two shattered windows as a result of a massive windstorm. Good windows are like good beds — you’ve got to have them.
CGI isn’t PGT Innovations’ only brand, but it is the one that got my attention.
A quick look at the company’s Q2 2018 results checks all the growth boxes: revenues up 23%; gross margins improved by 300 basis points to 35.4% in the quarter; adjusted net income grew 108% in the quarter; the list runs long.
I might not have heard of PGT Innovations before now, but I’ll be getting to know it better in the weeks ahead.
It’s a winner.
Growth Stocks to Buy: Five Below (FIVE)
Five Below (NASDAQ:FIVE), on the other hand, is a retail stock I’ve known for some time.
A few weeks ago, I named FIVE a momentum stock to buy now. Momentum, growth, what’s the difference? Five Below is delivering for shareholders, up 72% year to date.
It can’t keep up this blistering pace, can it?
Well, the economy has got to cooperate, but even if it doesn’t, the company’s $5 or less concept should be able to withstand a downturn better than other, more cyclical businesses.
In June, InvestorPlace’s Josh Enomoto called FIVE stock pricey and suggested waiting on a significant price correction to bring its P/E multiple from really obscene down to regular obscene. Josh is on the ball, so I get where he’s coming from, but when you have pristine financials like Five Below does and it has barely scraped the surface in states like California, you have to pay a much higher admission price.
You wouldn’t object to paying $200 for front row seats to see Bruno Mars or some other top talent but you’d certainly have a problem paying that amount for the late Tiny Tim.
As far as retail goes, Five Below is the industry standard.
Growth Stocks to Buy: Lululemon (LULU)
Do you know what struck me about VF Corp.’s (NYSE:VFC) recent announcement that it would spin-off Lee and Wrangler jeans into its own separate publicly traded company? The argument made by some industry pundits in 2017 that denim was making a comeback at the expense of athleisure companies such as Lululemon (NASDAQ:LULU).
That is nothing more than a pipe dream. LULU is alive and well, and sporting a new CEO who’s more than ready to take the company to the next level.
Since I called Lululemon a top 50 stock in August 2016, LULU stock is up 70% with all the gains coming in 2018.
Sure, the analysts are very positive about LULU at the moment, and that could be setting the company up for a colossal disappointment when it announces second-quarter earnings August 30, but long-term I see a long runway ahead of it no matter what the short-term results might be. It’s that good.
Growth Stocks to Buy: RealPage (RP)
Source: Grab Media
One of my favorite type of companies to invest in are those run by its founder. Statistics show that founder-led companies tend to do better than their peers delivering investment returns three times greater over a 25-year period.
Although it’s only been listed for 18 months, its initial performance — it’s up 31.4% since inception through July 31 — is very promising.
One of the holdings is RealPage (NASDAQ:RP), a company that helps multifamily residential real estate investors manage their properties using its proprietary cloud-based software solutions.
As I stated in June, companies such as RealPage, which make or save people money will always be in demand.
With 12,400 clients including all ten of the largest multifamily property management companies in the U.S., the tailwinds for RP stock are significant.
Growth Stocks to Buy: Evercore (EVR)
From time to time I’ll see an Evercore (NYSE:EVR) analyst mentioned in the business news, but I fail to link the analyst to the publicly traded company, and I really don’t consider whether it’s a founder-led company or not.
Well, it is.
Founded by Roger Altman in 1995, the investment bank went public almost 12 years later to the day, on August 11, 2006, at $21 a share. Up 419% since going public, which includes getting dragged through the mud in 2008 like every other public company, it continues to deliver for shareholders.
On July 25, Evercore announced its second-quarter results, which include a 19% increase in revenue to $444 million along with a 55% increase in net earnings to $83 million.
Thanks to its top-notch advisory services, revenues in this significant operating segment increased 23% year over year in the second quarter to $363 million.
The number of transactions garnering fees of $1 million or more in the quarter was 85, which was 39% higher than a year earlier.
With mergers and acquisitions happening on what seems like a daily basis at the moment combined with Evercore grabbing more market share puts investors in a solid position heading into 2019.
When it comes to growth stocks, you want to ride the trend. In the case of Evercore stock, the trend continues to be up.
Growth Stocks to Buy: SVB Financial (SVB)
I’m not going to say too much about SVB Financial (NASDAQ:SIVB) because I like the fact that it continues to fly under the radar despite outperforming most of America’s big banks over the past decade.
Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) owns six bank stocks. Over the past ten years through August 21, they’ve averaged an annualized total return of 6.8%. Over the same period, SIVB’s delivered a 19.7% annualized total return, three times the return of Buffett’s six banks.
Now, I’m a Warren Buffett fan, but none of those banks can hold a candle to Silicon Valley Bank.
Focused banks tend to do well over the long term. That’s why in 2013, I called SIVB one of the five best stocks to own for the next 20 years.
Growth Stocks to Buy: Veeva Systems (VEEV)
If I had a dollar for every time I read the word “cloud” or “cloud-based” in the business news, I’d be a wealthy man, because it seems like every business is cloud-based these days.
One such stock that might have a chance of making its shareholders obscenely wealthy is Veeva Systems (NYSE:VEEV), a California company that helps life sciences companies manage all their content and data on one platform, streamlining their end-to-end clinical processes.
If I lost you after the previous paragraph, I assure you, you’re not alone. I too have a problem understanding tech companies at times. A simpler explanation: Veeva helps scientists and medical practitioners get more work done in a compliant-friendly manner.
Again, businesses that make or save people money or save them time will always be in demand.
The thing I like about Veeva is that it’s not growing at an alarming rate — in Q1 2019, revenues rose by 22% to $196 million with subscription revenues accounting for 80% of its quarterly sales.
Meanwhile, it also generates healthy profits — non-GAAP net income in Q1 2019 was $51.4 million, 50% higher than last year and 22.5% of revenue — which bodes well for the long-term sustainability and growth of its business.
In fiscal 2019, Veeva expects revenues and non-GAAP operating profits of at least $826 million and $261 million respectively, both healthy double-digit increases over fiscal 2018.
Slow and steady wins the race.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.