3 Healthy Additions to Your Growth Stock Portfolio

Zachary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

American consumers are becoming more health conscious by the day. After a generation of value meals, double whoppers with cheese, and super-size fries, the effects of an unhealthy lifestyle are accumulating. But consumers in the U.S. are now taking steps towards improving their health. 
recent article in the Huffington Post showed that while obesity is still a major problem, the percentage of Americans who exercise has been increasing, and the number of Americans who smoke has been decreasing.
We're still working on the obesity problem with 28.4% of adults over the age of 20 fitting into the category. But this good news for the companies that make vitamins and supplements to help Americans loose weight and stay healthy.
Today, I want to take a look at three companies that are actively engaged in helping improve the health of Americans and that make excellent growth stock candidates for your portfolio.
GNC Holdings: A legacy of growth 
Shares of GNC Holdings (NYSE: GNC) look very attractive, considering the company's commitment to earnings and revenue growth. While earnings certainly follow a seasonal pattern (how many of us really stick to a healthy lifestyle during the holiday-laden fourth quarter), GNC has a habit of growing year-over-year revenue and earnings figures.
<img alt="" src="http://g.fool.com/editorial/images/48584/gnc-eps-growth-2013-06-08_large.png" />
The company recently instituted a new customer loyalty program that has proven to increase traffic at the stores in which this program was tested. As the system rolls out nationwide, the company should see a boost in same store sales.
GNC is expected to earn $2.80 per share this year, versus $2.33 per share last year. This represents a 20% growth rate, on top of the trend of growing earnings the company has already established. The 20% growth rate is expected to continue in 2014, which will certainly help towards boosting the stock price.
At this time next year, investors will be looking carefully at the 2014 estimates (which continue to be revised higher). I expect these investors to be willing to pay 20 times earnings, given the company's steady growth rate. 
This leads me to a price target of $67 (20 times estimates of $3.36). Of course, this represents a potential gain of 50% above the current price.
Vitamin Shoppe: Record EPS & revenue growth
Not to be outdone, Vitamin Shoppe (NYSE: VSI) has been steadily growing earnings and revenue as well. Once again, we can see the seasonal pattern with weak fourth quarters followed by healthy growth as consumers make New Years promises and load up their cupboards with the healthy stuff.
<img alt="" src="http://g.fool.com/editorial/images/48584/vsi-eps-growth-2013-06-08_large.png" />
Last month, the Motley Fool noted that both operating margins and net profit margins are currently hitting peak levels as the company efficiently manages its growth.
For 2013, Vitamin Shoppe expects to open 50 new stores, while growing existing store sales in the "low to mid single digit" range. Investors were a bit disappointed with a cautionary statement from management on April sales figures, but the pullback in the stock price should give new investors an attractive spot to buy shares at a cheaper valuation.
Looking forward to 2014, analysts expect growth to remain on track, with the company boosting earnings by 17.4% between 2013 and 2014. These expectations may be overly conservative, given management's cautionary tone regarding April sales.
The stock is currently trading at 17 times 2014 expected earnings, which is a reasonable price given the current estimates. But as the new stores come online in the next year and the company continues to take advantage of the US trend for better health, shares of Vitamin Shoppe should trade higher.
Herbalife: Controversial, but attractive 
There has been no shortage of negative press for Herbalife (NYSE: HLF). The company has a distribution network that operates very much like a multilevel marketing (MLM) scheme. Under this structure, "distributors," who are a hybrid sales associate / recruiter, sign up new customers as well as new distributors who are expected to peddle the company's products.
Each new recruit is required to make an initial investment to get started, which adds to Herbalife's quarterly profits. Of course, the real income is supposed to be built when new recruits actively sell products to consumers.
Since all of Herbalife's products are consumables, every new customer potentially represents a long-term stream of revenue. The big question is whether the company makes the majority of its profits from consumers, or from new sales associates coming online.
Despite the controversy, Herbalife has an enviable track record of revenue and earnings growth:
<img alt="" src="http://g.fool.com/editorial/images/48584/hlf-eps-growth-2013-06-08_large.png" />
This year, analysts are expecting Herbalife to grow earnings by 18% to $4.78 per share. In 2014, earnings are expected to continue to grow, albeit at a slower pace of 14.4%. It is worth mentioning that analysts have been revising earnings expectations higher over the last two months.
Using a conservative valuation of 15 times 2014 expectations, I expect shares of Herbalife to reach $82.00 over the next 12 months. This represents a gain of about 88% over the current price.
In order to reach this valuation, management must work hard to shed the negative connotations of the company's marketing approach. It will be critical for the company to be able to demonstrate that revenues are being generated from end users of the company's products - rather than by membership payments from sales associates.
There is certainly more risk in this situation, but Herbalife represents a large potential gain if the company continues to grow earnings according to analyst expectations.
Different risks, different returns 
All three of these companies have strengths that should be attractive for particular segments of investors. 
Traditional growth stock investors should consider GNC because of the strong growth track record and attractive multiple.
More conservative investors should consider shares of Vitamin Shoppe because of the stability, the additional stores being opened, and the growth in same store sales.
And aggressive growth investors may choose to take a shot at Herbalife, given the tremendous advance possible if the company is able to shed the negative associations with its marketing platform.
All three of these health companies should yield attractive returns over the next 12 months.

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Zachary Scheidt has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $50 Calls on Herbalife Ltd.. 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!

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