Review & Outlook

Our take on the investing, financial, & economic themes of the day

Five “New America” Growth Stocks on Our Radar

Where do great investment ideas come from? You can build complex screens to sift through data on thousands of stocks. You can analyst new trends and economic developments. Or you could closely follow the experts like Warren Buffet to try to glean some of their secrets.

We do all of this, but I’ve also found that a lot of good ideas come from less obscure sources. One is the newspaper Investor’s Business Daily. The paper has a daily column called the New America, where it profiles innovative and successful up-and-coming companies.

The following are five companies that recently appeared in the New America column that I am currently looking at. You can click on the links to read the original Investor’s Business Daily article:

WhiteWave Foods Co. (WWAV), which is headquartered in Dallas and has a market cap of $5 billion, makes dairy milk substitutes sold under the Silk brand as well as other health food. WhiteWave was spun off from Dean Foods (DF) in 2012 and since then is up almost 80%. The company is ramping up production to keep up with growing demand, especially in almond milk which is overtaking soy milk in popularity. Earlier this year the company acquired Earthbound Farm, a maker of organic, packaged salad greens. WhiteWave also produces organic dairy milk, which is becoming increasingly popular. The company has strong growth in Europe and is expanding in China, were analysts estimate soy milk is a $2 billion dollar business, growing 10% per year. In the first quarter Excluding Earthbound, sales grew 12% and earnings climbed 38% to 22 cents a share.

(Source: Silk.com)

FleetCor Technologies (FLT) operates payment services for trucking companies and other transportation fleets. The company issues fuel cards that facilitate the tracking and managing of fuel costs. The company has a market cap of $11 billion and revenue of over $1 billion. FleetCor now operates in 43 countries and is expanding aggressively abroad, growing both organically and through acquisitions. FleetCor’s revenue during the first quarter grew 31% from the previous year to $253.9 million. Earnings rose 24% to $1.12 a share, beating estimates for $1.01. 2014 Full-year earnings are predicted to rise 25%. FleetCor’s strong and consistently improving margins indicated that it has a strong competitive position in the industry.

Cavium (CAVM) is a computer chip designer with a market cap of $2.4 billion that is poised to benefit from the rise of smartphones. The company designs chip for “networking, telecom, storage, wireless, security and video markets,” according to IBD. The company is what’s known as a “fabless” chip company because they design the chips but outsource their actual production. IBD writes, “The company has strung together five straight quarters of double-digit or better sales and earnings growth. Analysts expect the trend to continue in coming quarters.” Big customers include Samsumg, Emerson Electric and Cisco. The stock beat earnings expectations and is up 38% this year. However, the valuation warrants caution. Even after a recent pullback the stock sports a forward PE over 60.

Hain Celestial Group (HAIN) is leading maker of natural and organic health foods with brands ranging from Celestial Seasonings tea, Garden of Eatin’ snacks, Health Valley soups and cereal, WestSoy milk substitutes and Earth’s Best baby and kid’s food. According to IBD, “Hain has logged double-digit sales and profit gains every quarter for more than three years.” The company is growing as it gains more shelf space in grocery stores for increasingly popular natural and organic products. Hain is also growing rapidly through acquisitions. The stock, however, has stalled this year, down almost 5% year-to-date. With a forward PE of 23, down from a high of 30 in 2012, the stock could be approaching a better entry point.

(Source: celestialseasonings.com)

PolyOne (POL) is a maker of specialty plastics with a market cap of $3.5 billion. According to IBD, the companies has transformed itself in recent years from making low-margin, commodity-like plastics to producing more innovative and profitable specialty materials. Demand for specialty products used in healthcare and other applications helped PolyOne run off four straight quarters of 25%-or-better sales growth, writes IBD. Then last quarter sales fell 3%, but this was largely the result of shedding some unprofitable businesses associate with an acquisition, which was a one-time charge. PolyOne is up 28% over the last year, but recently pulled back sharply, offering a possible buying opportunity.

I haven’t yet decided to buy any of these companies and need to do more research, but the above stocks give you a window into our investment process and one way we find new stock ideas.

As with any growth stocks these days, all of these stocks above are fairly expensive. Sometimes it’s okay to pay more for quality though. Another option is to add them to your watch list and buy on the next pullback.