Growth Stocks Aren't Dead
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I don't normally do this, but I've been harping on dividends so much that I'm afraid my comments are going to start boiling down to, "Dude, just buy bonds." I like income, but sometimes I like watching my stocks go up. And not just if they pull a BP (NYSE: BP) and have a big oil spill that causes people to, uh, jump ship as it were. That's just a case of a strong company being temporarily unpopular and then snapping back once people realize it isn't going anywhere. Let's look at a few companies I think have some serious growth power in them that the market hasn't necessarily caught onto yet.
Innovation Plus Security = Hell Yeah
Avago Technologies (NASDAQ: AVGO) has a great moat because of its 5,000 patents. But that's just good for keeping afloat, not for growing. But wait, there's more! I think Avago has solid growth prospects for 3 reasons:
1. The company carries a 13% debt to equity ratio, meaning it isn't loaded down with debts to pay on. It's hard to grow with creditors hammering away at your income.
2. Its ROE is 26.83. That means it's making $0.26 of profit on every dollar in the company, and that's a lot to grow with.
3. Avago is also running on a strong 23.55% profit margin, which means there's plenty of money coming in that hasn't got any immediately urgent use. That money can go a lot of great places.
E-commerce on Steroids
MercadoLibre (NASDAQ: MELI) benefits from basically being the Latin American eBay. Imagine having a highly efficient online marketplace in one of the biggest growth regions in the world and you'll understand why I like this company. Right place, right time and milking it. With a 41.36 ROE, this is an extremely efficient company, and those 27% profit margins are a good wall against temporary bad times. With its tiny 9.5% debt/equity ratio, it's more financially stable than I am. And I'm secure enough to celebrate that... instead of being envious. Which I'm not.
Pensions? Do They Still Exist? Yes, They Do.
Pensions are still a thing. I'll get one. And so will the people under the protection of AFP Provida (NYSE: PVD), one of the biggest and the most secure pension provider in Latin America. With its 55.75% profit margins, this is a pension provider that's here to stay for awhile. With its ROE of 30.45, Provida is also operating with tremendous efficiency. The same as all the other companies on this list, it has a low debt/equity ratio which gives the company plenty of flexibility. I do worry about pensions in Provida's service areas going the same way most pensions have in the US have, and that's the only potential problem I may have with the company at this moment.
The Industry's Growing, So it Needs More Parts
InvenSense (NYSE: INVN) has taken some hammering the past few months, and I think this is stupid. Not silly, not unfortunate, but just plain stupid. The company has a 2.2% debt to equity ratio and 22.72% profit margins, so it's operating a sound business. On top of that, the company is rocking a 27.59 ROE, meaning it's roaring ahead on an efficiency standpoint. On top of that, InvenSense supplies the motion control mechanism that most of the world's smart phones are now using. While this is mostly for games at the moment, I can imagine the Motion Interface also going to work in a lot of other kinds of apps. Anywhere motion matters and judging it can be helpful opens up an opportunity for smart phones to get more useful... and InvenSense makes money.
Okay, growth stocks are pretty awesome. They may not pay a dividend, but it might feel nice to look in my portfolio and see some growth. Maybe I could try adding a few companies like these to my portfolio. But dividends still own my heart.
pongun has no positions in the stocks mentioned above. The Motley Fool owns shares of InvenSense and MercadoLibre and has the following options: short DEC 2012 $10.00 calls on InvenSense. Motley Fool newsletter services recommend MercadoLibre and AFP Provida. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!