9 Growth Stocks Waiting to Become Value Stocks

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Note: The company Continuecare, originally mentioned in this article, entered into a merger agreement with Metropolitan Health Networks and was therefore removed from the edition seen below. The Motley Fool apologizes for this error.

As market participants, it seems we've reached uncharted territory with a dramatic fork in the road ahead of us. Having put one of the more volatile months in recent memory in the rearview mirror, investor confidence seems shaken. The U.S. economy appears weaker than originally hoped, with economists and market observers lowering their expectations about U.S. economic growth over the past several weeks.

Equally worrisome, the political establishment in Europe seems unable to take measures to solidify its fiscal union. Markets now believe Greece has a 98% chance of defaulting over the next five years. While a Greek default would cause pain everywhere, the likely contagion threatens to snuff out fragile recoveries across the developed world.

While a positive outcome looks possible, although far from certain, savvy investors will want to have a few potential targets in their sights should markets continue to soften and buying opportunities increase.

Great stocks at ugly prices
As fundamentals-driven investors, Fools understand the need to avoid overpaying for stocks. Unfortunately, that also means plenty of good stocks trade for multiples beyond what you'd prefer to pay at any given time. This situation helped drive The Motley Fool to create our popular MyWatchlist feature. It enables investors to keep an eye on individually selected stocks, helping them to stay up to date on new developments and to pounce on lucrative opportunities as they appear. Below, you'll find nine companies that have all the makings of winning investments, but look just slightly too pricy.

Company

1-Year Price Change

P/LTM Diluted EPS Before Extra

Total Revenues, 5-Year CAGR

EBIT, 5-Year CAGR

Total Debt/Equity

LKQ (NAS: LKQX)32.6%20.033.6%37.8%38.2%
Dollar Tree (NAS: DLTR)55.6%19.511.5%19.7%16.7%
Lindsay51.1%19.416.5%39.5%3.82%
Herbalife (NYS: HLF)91.8%18.912.4%14.1%28.0%
Cantel Medical54.5%18.818.0%29.4%13.1%
Dick's Sporting Goods27.4%18.512.3%17.0%9.29%
Coach(NYS: COH) 39.6%18.415.4%12.9%1.5%
Air Methods (NAS: AIRM)56.5%16.816.7%22.3%37.5%
Tupperware Brands (NYS: TUP)46.5%16.310.7%24.0%53.5%

Source: Capital IQ, a Standard & Poor's company.

Whereas the S&P 500 has moved only 3.5% over the past 12 months, these stocks have posted strong results, each of them gaining more than 25% in the same period. These companies all must have shown top-line and operating profit growth of greater than 10% over the past five years and have less than a 1-to-1 debt-to-equity ratio. These companies have had strong past results and could make for intriguing buys if they become slightly cheaper.

Different recipes, same results
LKQ and Dollar Tree both harness the same general business strategy, one particularly well-suited for today's lean times, providing consumers with low-cost options of two of life's necessities: transportation and consumer staples. LKQ sells and distributes replacement auto parts throughout the U.S. This kind of company has all the characteristics of a defensive investment. As people increasingly can't afford to replace their aging cars, they, or their mechanics, turn to Lindsay to provide the parts needed to keep them getting from Point A to Point B at a more manageable cost. The same holds true with Dollar Tree. It gives cash-strapped people a place to stock up.

Coach and Tupperware fit into an emerging-market storyline. Each has, in its own way, benefitted from growing demand for their goods both domestically and especially abroad. With its strong brand recognition, Coach dominates domestic markets and is widely sought after in emerging markets, especially in Asia. Tupperware also executed beautifully on emerging-market growth with its emerging-market sales contributing 9% sales growth in the last quarter. Equally encouraging, it registered double-digit sales growth in several key markets, including Brazil and India during its most recent quarter.

Cantel Medical, Air Methods, and Herbalife (to a lesser extent) have all managed to bolster their businesses by focusing on specific niche areas of the health-care industry. On the whole, the health-care industry appears primed to grow substantially as the baby boomer generation ages. Cantel, a provider of infection prevention products to health-care facilities, just notched a record quarter, reaching all-time highs for sales and improving profits as well. Similarly, Air Methods continued to expand its reach as the largest air medical transportation service in the world. With what seems unarguably an inelastic service, the company should continue to solidify its competitive position over the last quarter. Similarly, Herbalife posted extremely strong quarterly results in their most recent quarters and impressive past growth.

To continue the trend of strong performances, Dick's knocked its most recent quarter out of the park, having double-digit EPS growth. All in all, the business seems to be growing by leaps and bounds, with management masterfully capitalizing on its strategy of expansion. Although operating in a different industry, Lindsay also fits into the mold of a business benefitting from a sweeping trend. The irrigation provider grew revenue by 53% in its most recent quarter. This makes plenty of sense with Lindsay providing irrigation equipment that improves crop yields in a time of surging food prices.

On the whole, these companies look like a pretty impressive group. However, investors need to remember past growth doesn't always constitute future performance. These strike me as exactly the kind of companies investors need to be ready to pile into if their price multiples decrease slightly.

Although harrowing at times, the market has plenty of great dividend stocks out there. Research proves those little checks help investors beat the market and retire in style. The Motley Fool has compiled a report for you highlighting some of best dividend opportunities on the market. Click here to get your free copy today.

At the time this article was published Fool contributor Andrew Tonner holds no financial position in any of the companies mentioned in this article.The Motley Fool owns shares of Coach and Tupperware Brands.Motley Fool newsletter serviceshave recommended buying shares of Coach. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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