Buy These 5 Solid Sales Growth Stocks for Profitable Returns
In a bullish market, selecting stocks is not an easy task. You might end up with overpriced and unprofitable stocks.
Therefore, during such times, it is advisable to use conventional strategies, based on key fundamentals, to select stocks. One such strategy is focusing on sales growth.
Consistent growth in sales is the key to the survival of any business. For companies, sales growth not only provides an insight into product demand and pricing power but is also vital for growth projections and strategic decision-making.
Also, it must be kept in mind that in case companies incur a loss (albeit temporarily), these are valued on the basis of revenues. Top-line growth (or decline) is an indicator of a company’s future earnings performance.
In an improving economy, the absence of sales growth indicates that the company’s market share is not increasing. So, some sustained sales growth is essential to support the bottom line.
Yet, a huge sales number does not always turn into profits. Hence, it’s more sensible to consider a company’s cash position along with its sales number. Substantial cash in hand and a steady cash flow provide a company with more flexibility regarding business decisions and investments.
Choosing the Winning Stocks
In order to shortlist stocks with impressive sales growth and a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow more than $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for selecting stocks. Hence, we have added certain other factors to arrive at a winning strategy.
P/S Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.
% Change F1 Sales Estimate Revisions (four weeks) greater than X-Industry: Estimate revisions, better than the industry, are often seen to trigger an increase in stock price.
Operating Margin (average last five years) greater than 5%: Operating margin measures how much every dollar of a company's sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs — an optimal situation.
Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means that the company is spending wisely and is in all likelihood profitable.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform, irrespective of the market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 26 stocks that qualified the screening:
Irving, TX-based Celanese Corporation CE is a global hybrid chemical company. The company produces chemical substances and materials. About 95% of Celanese's products rank either first or second in their respective markets, based on market shares.
Celanese’s expected sales growth rate for 2021 is 50.5%. The stock currently carries a Zacks Rank #2.
Headquartered in North Reading, MA, Teradyne Inc. TER is a leading provider of automated test equipment. The company is primarily focused on the semiconductor test market, which generates the bulk of its revenues.
Teradyne’s expected sales growth rate for 2021 is 18%. It currently carries a Zacks Rank #2.
Midland, TX-headquartered Diamondback Energy, Inc. FANG is an independent oil and gas exploration & production company. FANG’s primary focus is on the Permian Basin where it has around 414,000 net acres.
Diamondback Energy’s sales are expected to increase at a rate of 12.9% for 2021. The stock sports a Zacks Rank #1 at present.
Based in Washington, DC, The Carlyle Group Inc. CG is one of the world’s largest global investment firms. The company originates, structures, and acts as a lead equity investor in management-led buyouts, strategic minority equity investments, equity private placements, consolidations and buildups, and other investment opportunities.
Carlyle Group’s expected sales growth rate for 2021 is 80.2%. The stock sports a Zacks Rank #1 at present.
Expeditors International of Washington Inc. EXPD is a leading third-party logistics provider. The company, based in Seattle, WA, is engaged in the business of global logistics management, including international freight forwarding and consolidation, for both air and ocean freight.
Expeditors International’s expected sales growth rate for 2021 is 52.7%. The stock sports a Zacks Rank #1 at present.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance
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Expeditors International of Washington, Inc. (EXPD) : Free Stock Analysis Report
Celanese Corporation (CE) : Free Stock Analysis Report
Teradyne, Inc. (TER) : Free Stock Analysis Report
Carlyle Group Inc. (CG) : Free Stock Analysis Report
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
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