Six Top Stocks to Buy for Real Revenue Growth in 2011

Stock trader at NYSEThere's a saying on Wall Street that you can't cut your way to growth. That may be true over the long haul, but in the short term? Not so much. Just witness the ongoing V-shaped recovery in corporate earnings, where profits are soaring, but sales are not.

The fourth-quarter earnings reporting season currently under way looks pretty much like all the others since corporate profits bounced back from their nadir during the recession. Earnings are growing handsomely thanks to margin-expanding cost cuts -- not a commensurate rebound in revenue.

Analysts, on average, expect the S&P 500 ($INX) to post year-over-year quarterly earnings growth of 32% this season, according to data from Thomson Reuters. Revenue, however, is forecast to increase just 6%.

The only way a company can increase profits faster than sales is by reducing expenses, and that has some observers fretting that the days of heady earnings growth are poised to peter out.

"While companies have been producing strong double-digit earnings gains on the back of single-digit revenue growth coupled with significant cost reductions over recent quarters, further gains are limited," Jeffrey Kleintop, chief market strategist at LPL Financial, told clients ahead of earnings season. "There is little room to squeeze out additional expenses in 2011 particularly given that costs associated with materials, energy, and expanding workforces are rising."

Hunting for the High Growth Exceptions


Although the broad swath of companies comprising the S&P 500 might be putting up rather anemic top-line growth, plenty of individual names are showing signs of healthy sales gains. To see where some of the better bets on revenue growth might be found, we used data from Capital IQ and Thomson Reuters to screen the S&P 500 for companies forecast to generate annualized revenue growth over the next two years of at least 20%.

To ensure that most of this growth would find its way to the bottom line, we also looked for estimated annual earnings-per-share growth of at least 20% for the next two years. Stocks also had to trade at a forward price/earnings (P/E) multiple of at least a 5% discount to their own-five year averages (suggesting they might be bargains). And finally, we screened for "quality" stocks by locking out any name with a return on equity of less than 20%.

That left us with six companies. See the chart below.



Cliffs Natural Resources (CLF), a miner of iron and coal, is forecast to have annualized sales growth of more than 57% over the next couple of years, but most of it is front-loaded into the current period. Revenue gains are expected to cool off sharply thereafter, but shares still look like a bargain.

Chipmakers Altera (ALTR) and Broadcom (BRCM) are benefiting in part from the revolution in portable consumer electronics, which naturally brings us to Apple (AAPL). It's hardly a surprise the company is putting up great top-line results. More interesting is that Apple still trades at a significant discount to its own average forward P/E.

Shares in Celgene (CELG), the biotech that brought the world Ritalin, are down about 13% from their 52-week high, helping keep the relative valuation attractive.

And heavy-equipment-maker Caterpillar (CAT) continues to chug away on the mining and construction booms in emerging markets.

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oldschool

Just so you know Bush tried to privatise SS and for good reason. It would stop the democrats from borowing it and spending it. Plain truth the democrats are delusional, now they want to omit some things from the Health Care Reform Bill they railroaded through against Americans wishes. Why pass a bill then say ohh well that`s no good we gotta omit it. Is that the kind of people you want running this country ? Now they are taking away 1/2 of paid Medicare so yes they can spend it. The bill is a bad apple !!

January 23 2011 at 11:56 AM Report abuse +2 rate up rate down Reply
3-**9+63

I don't see the article on Social Security but maybe those of us who are senior are being set up for another Madoff Scheme. Lol.

One more point I'd like to make; I'm noticing the 401K programs are being slowly change to allow those with the right stuff to continue gambling with the money.We never learn.

Keep your eyes on your 401k's. Actually they aren't investments; they're a means to supplement SS in our senior years. Get greety by allowing large private institutions to invest your 401K heavly and be a future member of the homeless community.

I put a dollar in,I want a dollar back; I'm not interested in growing a 401K because I'm already receiving the tax write off from the gate. That's good enough; any more is pure greed.

January 23 2011 at 5:07 AM Report abuse +1 rate up rate down Reply
jokesl3

I will write the story that was supposed to be here. How TO UP Your SS Benefits: 1) Get rid of Obama and the clowns he surrounds himself with. The end.

January 23 2011 at 4:08 AM Report abuse -1 rate up rate down Reply
1 reply to jokesl3's comment
tylersnana

Well written, well said!!!

January 23 2011 at 4:34 AM Report abuse +1 rate up rate down Reply
cartra

DON.T WORRY OBAMA JUST NEGOTIATED A TRADE DEAL WITH CHINA AND WE WILL GET 250K JOBS FROM IT! OH I FORGOT CHINA CAME OUT ON TOP BECAUSE OBAMA FELT IT WOULD BE A GOOD SHOW OF FRIENDSHIP TO GIVE THEM THE BETTER HAND. DONALD TRUMP SAID OBAMA IS A FOOL IN THAT CHINA IS NOT OUR FRIEND THEY ARE A COMPETITOR AND WILL USE IT AGAINST US. I THINK THE TRUMPSTER MIGHT BE RIGHT ON THIS. LOL

January 23 2011 at 3:57 AM Report abuse +2 rate up rate down Reply
jfromulus

I know of a lot of liberals cashing in on ssi at 40 years of age they say the doctors say they are unemployable

January 23 2011 at 2:22 AM Report abuse +1 rate up rate down Reply
jkc

confusing & of course, with this weak economy/ who has any funds to invest. Most people are fortunate to put food on the table & have a place to live. When will jobs and some sense of worth return for us. USA is not doing its' job of providing what we expect. It's a disastor & finding stocks to invest in is insulting.

January 23 2011 at 2:18 AM Report abuse +3 rate up rate down Reply
Brian Workman

S.S. ?!?!?!?!? idiots!!!!!!!!!!!!!!!!!!!!!

January 23 2011 at 1:21 AM Report abuse rate up rate down Reply
Brian Workman

S.S. ?!?!?!?!? idiots!!!!!!!!!!!!!!!!!!!!!

January 23 2011 at 1:20 AM Report abuse +1 rate up rate down Reply
Brian Workman

S.S. ?!?!?!?!? idiots!!!!!!!!!!!!!!!!!!!!!

January 23 2011 at 1:20 AM Report abuse +1 rate up rate down Reply
Mike

Where is the article I was supposed to read about S.S.???

January 23 2011 at 12:49 AM Report abuse +8 rate up rate down Reply