Stocks That Could Continue to Run
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One area that I have identified as an area of opportunity for myself (and most investors) is identifying and considering stocks that have the potential to continue to reach new highs. That is because instinctively I want to do what we all want to do: buy low and sell high.
That said, the stocks in this article are not value stocks. They are not stocks that have price to earnings ratios in the single digits, or even below many stocks of the S&P. And they are not stocks that the amateur investor should consider. But these are stocks that investors are placing bets on because they are stocks that have the potential to run!
The first stock that has the potential to continue to make new 52-week highs is SodaStream (NASDAQ: SODA). This company manufactures devices that turn water into soda. Varieties of syrups and fruit-flavored concentrates are available to create different flavors. Fairly recently, for example, SodaStream and Kraft foods entered into a partnership involving the use of the Crystal Light and Country Time brand flavors with the SodaStream system. This stock is currently trading at a price to earnings multiple of around 30, which might seem high. Except that this company is small enough that it could continue to grow revenues and earnings by more than 25% over the next few years. Plus this company is benefiting from sustainability campaigns in Europe as well as the controversy associated with the Super Bowl commercial. Overall, I feel that this company is well-positioned to benefit from trends and solid marketing.
The second stock that has the potential to continue to make new 52-week highs is On Assignment (NYSE: ASGN). This company is also trading at a fairly high price to earnings multiple of around 27. Like SodaStream, On Assignment is well-positioned to benefit from various trends, namely larger temp worker pools and an increased appetite for temporary workers. More and more companies are realizing that they need very specialized experience for a finite time period. In 2011 On Assignment acquired Vista and HealthCare Partners and in 2012 the company acquired Apex Systems. Those acquisitions are catalyzing growth. Over the past 5 years, On Assignment has grown Revenues at a yearly rate of more than 15% and Net Income by more than 17%. More recently, this past quarter Revenues increased by 139% (quarter vs. year ago quarter) and Net Income increased by 124% (quarter vs. year ago quarter). All in all, this company is on a terror and the underlying fundamentals suggest that this company is poised to continue to grow.
The third stock is NeuStar (NYSE: NSR). NeuStar is a provider of real-time information and analytics for the Internet, telecommunications, entertainment, and marketing industries as well as a provider of clearinghouse and directory services to the global communications and Internet industries. NeuStar is well-positioned to benefit from increased consumption of big data. The company currently sells at a price to earnings multiple of around 15 and a forward price to earnings multiple of around 13. NeuStar’s underlying fundamentals are extremely positive and it appears as though a number of factors such as the acquisition of Targus Information and increased demand will result in continued growth for the company.
My Foolish Take
All three of these companies have very strong earnings, sales, and other fundamentals that suggest that they will continue to rise. Although these companies trade at price to earnings multiples that are higher than the value stocks that I mull over, all of these companies are growing at rapid rates and there is no reason to believe that trend will stop. Of these companies, On Assignment’s performance is the most correlated to the overall economy – so be careful with that stock. All of these stocks have upside potential, but that is accompanied by significant risk.
All factors considered, SodaStream International and NeuStar are the best bets. But I would wait for a significant pullback before considering any of these stocks. For a variety of reasons, I do not feel that any of these stocks are stocks that you could simply buy and hold. Instead, I lump these three stocks into the "trading stocks" category. So if you consider purchasing one of these stocks, ensure that you understand what makes the stock move and closely monitor underlying fundamentals and trends.
RyanPeckyno has no position in any stocks mentioned. The Motley Fool recommends SodaStream. The Motley Fool owns shares of SodaStream. 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!