When seeking stocks for your portfolio, it makes sense to look for growing companies, and rapid growers understandably can be particularly enticing.
Below are a handful of companies with impressive revenue growth rates over the past three years. Why look at revenue growth? Well, while it's true that the bottom-line profit might be most critical, it's hard to grow your bottom line unless your top line is growing at a good clip.
3-Year Annualized Revenue Growth
Brookfield Infrastructure Partners
Let's take a quick look at each of these, so that you can get an idea of how interesting they are to you and whether you'd like to dig deeper into any of them.
Brookfield Infrastructure, recently yielding 4%, owns many valuable, and productive, assets such as coal terminals, railroads, dozens of port terminals, thousands of miles of natural gas transmission lines, thousands of miles of electricity transmission lines, hundreds of thousands of acres of timberlands, and much more. It operates toll roads and a coal terminal. It's clearly rather diversified, operationally and geographically -- for example, supplying some 98% of Chile's electricity and being the sole provider of railroad services in Southwestern Western Australia. It's also a defensive company, as many of its offerings, such as electricity, are not optional. It's not perfect, but it has a lot to recommend it. The stock has averaged annual growth of 20% over the past five years.
Heckmann is a wastewater treatment and disposal specialist, and has been growing briskly in part due to its work serving the controversial fracking industry and its presence in just about every shale field. (The process of fracking consumes a lot of water, which must be supplied and treated.) Heckmann recently bought the Power Fuels company, expanding its energy services to include more liquid work instead of mainly gas. Heckmann has been unprofitable, but it has been turning that around. The stock has actually mostly fallen in recent years -- that's enough to keep some away, but it makes others wonder whether it's attractively priced now. Its recent forward P/E of 35 coupled with a 25% estimated five-year growth rate suggest that it might not be quite a screaming buy.
Spectrum Pharmaceuticals is enjoying the success of its colorectal cancer drug, Fusilev -- but that success has been partly due to a supply shortage faced by competition. Still, not every biotech company has products actually approved and selling in the market. And on top of that, Spectrum has more than a dozen other drugs in development in its pipeline, and has broadened its scope with the recent purchase of Allos Therapeutics, which brought with it a lymphoma drug, Folotyn. The Allos buy is expected to deliver cost savings, too. Spectrum also recently secured rights for the bladder-cancer drug apaziquone and announced a special dividend. Some see the company as attractively valued as well as a possible acquisition target. For example, Spectrum's share count has risen significantly, though the company plans to buy back shares, offsetting some of that.
MAKO Surgical appeals to those who have watched robotic surgery giant Intuitive Surgical's explosive growth and who wish they could have bought in when the company was smaller. MAKO is a smaller such company, with lots of room to grow, specializing in partial-knee- and hip-replacement procedures. The stock soared 66% in 2009, 37% in 2010, and 66% in 2011, before being sliced roughly in half in 2012 and continuing its fall into 2013. What went wrong? Well, its earnings and free cash flow have remained solidly in the red for years, and the growth of its machines sold and procedures performed has had some hiccups. Some worry, too, about shrinking profit margins if the company cuts its prices to spur sales. Bulls, though, like the new, lower price, and expect sales to keep growing, especially as Americans age and continue to be overweight, putting more pressure on those knees.
Mesabi Trust is a royalty trust collecting a cut of the proceeds from iron mined by a Cliffs Natural Resources subsidiary -- and then paying it out to shareholders as dividends. It recently yielded a whopping 8%, but it's worth noting that unlike many companies with fixed payouts, Mesabi's fluctuate over time, along with the fortunes of the mines. In addition, while royalty trusts often have expiration dates, Mesabi's is rather far away. A possible downside for the stock is a slowdown in demand for ore, which has been one of several issues for Cliffs.
It's smart to seek out solid growers for your portfolio. Just be sure to buy into them at attractive prices. While some are compelling now, others might take a berth on your watchlist, as you wait to seize the opportunity of a price drop.
More expert advice from The Motley Fool
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The article 5 Explosive Growers to Buy or Watch originally appeared on Fool.com.
Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter,owns shares of Cliffs Natural Resources, MAKO Surgical , and Intuitive Surgical. The Motley Fool recommends Brookfield Infrastructure Partners, Intuitive Surgical, and MAKO Surgical. The Motley Fool owns shares of Brookfield Infrastructure Partners, Heckmann, and Intuitive Surgical and has the following options: Long Jan 2014 $4 Calls on Heckmann and Short Jan 2014 $3 Puts on Heckmann. 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.