When I recommended five "growth stocks at value prices" a few weeks ago, I said I would wait for a dip before buying them. The dip and then some came, not to mention an earthquake, tsunami and nuclear crisis in Japan and allied air strikes on Libya. The Dow Jones Industrial Average dropped over 200 points on March 16. In the midst of the turmoil, I bought the five stocks I had recommended.
My stock screen focused on companies with strong growth characteristics year-over-year earnings gains greater than 50% and revenue growth of more than 30%. I also excluded microcap stocks, setting $1 billion as the minimum market capitalization.
In addition to the five finalists, that exercise yielded another five tempting targets whose valuations were too rich for my taste, though they'll be on my shopping list in case we experience a real correction. With markets this unsteady, you never know when a buying opportunity will arise.
All five on my wish list are high-tech companies in the sense that they owe their high profit margins to their proprietary technology. Three of the five are enhancing manufacturing efficiency with lasers and optics. There's no way I'd call any of these value stocks, because all sport forward price/earnings ratios above the market's average of 13. I'd snap up these names only when the Nasdaq hits my next buying target of 2550, 10% below its most recent high of 2833.
Salesforce.com (CRM), one of my recommendations last year, has been riding the cloud-computing wave to soaring profits and growth. F5 (FFIV) likewise uses the internet for data services and storage to enhance a wide array of computer applications. It boasts impressive revenue and earning growth 41% and 90%, respectively and has beat analysts' earnings estimates for six straight quarters. Even so, F5 shares plunged in January after the company issued its latest earnings guidance. The good news? The stock, which was at $144 in mid-January, was $95 on Thursday. The forward P/E has also dropped, to 22 from more than 50.
II-VI (IIVI) makes high-tech components for precision lasers as well as an array of optical products used in manufacturing and communications. The company should continue to benefit from an improving economy, given that last year it reported stellar revenue and earnings growth of 76% and 220%, respectively. The stock was trading at $52 as recently as mid-February; on Thursday, it closed at $47. The company's forward P/E is now a reasonable 19.
Even before Middle East turmoil boosted oil prices, revenue and profits were surging for Carbo Ceramics (CRR), which dominates the market for ceramic proppant, used in shale oil and gas production. It also has a division focusing on spill containment and prevention, which seems timely in the wake of the BP disaster, and doesn't seem to have any serious competitors. With revenue growth of 33% and earnings growth of 65%, the forward P/E of 24 seems reasonable. Since it's likely to benefit from higher oil prices, CRR hasn't sold off as much as these other high-fliers. While the stock hit a new recent high on Thursday of $133, shares have been up and down the past couple months. Look for a buying opportunity.
Rofin-Sinar (RSTI) makes industrial lasers used in manufacturing and automation, especially in the resurgent machine tool and automotive industries. Last year revenue and earnings surged 48% and 315%, respectively. Though its fortunes are tied to some cyclical industries, it should benefit from a continuing economic recovery and growth in the manufacturing sector. Its forward P/E is 16. Shares were $38 on Thursday, down slightly from more then $40 earlier this month.
Cognex (CGNX) makes machine-vision products used to automate manufacturing, measuring and inspection processes. It has benefitted from recent growth in semiconductors and cellphone manufacturing, but some analysts question whether its 66% revenue growth can continue. Its earnings growth last year was off the chart at more than 4,000%, albeit from a low base. Cognex should continue to gain as long as manufacturing growth stays strong. Like Rofin-Sinar, its forward P/E is about 16. On Thursday the stock was $27, down from $35 in February.