Growth Ideas: Top 4 Most Undervalued, High-Growth Stocks
Morgan Stanley made additional cuts to 2012 global growth forecasts based on Europe's debt troubles. Fears have increased that the EU now faces recession and that the economy has already begun to contract in the third and fourth quarters.
Morgan Stanley also cut its 2012 growth estimate for Asia ex-Japan to 6.9% percent from 7.3%. Furthermore, the U.S. economy is forecast to grow below its trend, reports CNBC.
"Since we downgraded our regional growth outlook in August 2011, we have been constantly worried about the increasing downside risks to growth. In addition to further evidence of weakening domestic demand, the external environment in Europe has made us more concerned about the region's growth outlook," economists at Morgan Stanley said in a research note on Monday.
The "continued uncertainty" over debt troubles across the Atlantic didn't escape the notice of other forecasters. Goldman Sachs "warned on Friday that Europe's public sector funding problems were starting to spill over into household and corporate credit, turning the moderate recession the bank was forecasting into a more full blown recession akin to the 2008/09 global recession."
"The European economy is already essentially in recession, I think the U.K. is following close behind," Russell Jones, Global Head of Fixed Income Strategy at Westpac Institutional Bank told CNBC on Monday. He adds that given the fragility of Japan's economy, it won't take much to knock it into recession.
Morgan Stanley notes of Asia, "The prospects of further fiscal tightening and weaker domestic demand in Europe will translate into weaker external demand growth for the region. The slowdown in final demand in the developed world will likely be amplified on the region's cross-border production network, leading to a significant slowdown in export growth across the region in 2012."
Indeed, Asian exports have already dropped "on a sequential basis in the last two months," along with other indicators like China's Purchasing Managers' Index for manufacturing, which slowed to a 32-month low in November due to heightened concerns about a global economic shutdown.
Morgan Stanley seems to think global growth is slowing down. With that in mind, we wanted to explore growth stock ideas that could be used as a hedge against the economic slowdown.
To create the list below, we started with a universe of about 140 high growth stocks. All of the stocks mentioned below have seen their earnings grow by more than 20% over the last five years.
In addition, Wall Street analysts project rapid earnings growth over the next five years for all these stocks.
Of course, the investor's goal should always be to buy into earnings growth at a reasonable price. So we collected data on levered free cash flows, and identified the names that are trading at a significant discount to enterprise value.
All of these high-growth companies appear to be undervalued -- should any of them be on your watchlist?
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
List compiled by Eben Esterhuizen, CFA:
1. Bridgepoint Education (NYS: BPI) : Provides postsecondary education services. The company's earnings per share have grown by 67.17% over the last five years, and Wall Street analysts project the company's earnings to grow by 21.67% over the next five years. Levered free cash flow at $181.98M vs. enterprise value at $807.49M (implies a LFCF/EV ratio at 22.54%).
2. Standard Motor Products (NYS: SMP) : Distributes replacement parts for motor vehicles in the automotive aftermarket industry primarily in the United States, Canada, and Latin America. The company's earnings per share have grown by 28.03% over the last five years, and Wall Street analysts project the company's earnings to grow by 21.30% over the next five years. Levered free cash flow at $67.89M vs. enterprise value at $389.36M (implies a LFCF/EV ratio at 17.44%).
3. STEC (NAS: STEC) : Designs, manufactures, and markets enterprise-class flash solid-state drives (SSDs) for use in high-performance storage and server systems. The company's earnings per share have grown by 44.41% over the last five years, and Wall Street analysts project the company's earnings to grow by 23.05% over the next five years. Levered free cash flow at $27.31M vs. enterprise value at $237.28M (implies a LFCF/EV ratio at 11.51%).
4. Vistaprint (NAS: VPRT) : Operates as an online provider of marketing products and services to micro businesses worldwide. The company's earnings per share have grown by 32.26% over the last five years, and Wall Street analysts project the company's earnings to grow by 20.25% over the next five years. Levered free cash flow at $110.24M vs. enterprise value at $1.03B (implies a LFCF/EV ratio at 10.7%).
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen and Rebecca Lipman not own any of the shares mentioned above. LFCF data from Yahoo! Finance, all other data sourced from Finviz.
At the time this article was published The Motley Fool owns shares of Bridgepoint Education and Vistaprint V. Motley Fool newsletter services have recommended buying shares of Vistaprint V. Motley Fool newsletter services have recommended writing puts in Bridgepoint Education. 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.
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