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By John Birger
For every Dell or Nike that turns early promise into global dominance, there are hundreds of other highfliers that end up being huge disappointments for shareholders. We can’t guarantee another Dell, but we did find seven companies we believe have the best odds of making good on their potential.
What’s hot in business (all things energy, these days) isn’t always the best way to pick what’s smart for your portfolio. Here we separate the flashes in the pan from those truly poised for stock market success, based on valuation, PEG ratio, and accelerating profit growth. We also eliminated companies that have been publicly traded for fewer than five years.
Apache (APA)
Fastest-Growing Companies Rank: No. 99
Helped by improved oil production from the North Sea and unexpectedly strong gas production out of Canada and Egypt, Apache is expected to expand its total energy output by 8% this year and 9% in 2006. That, combined with fast-climbing energy prices, has translated into huge earnings gains for Apache—56% through the first half of this year.
Endo Pharmaceuticals (ENDP)
Fastest-Growing Companies Rank: No. 56
Home to Percocet, Endo’s specialty is pain medicine: It offers branded and generic drugs for everything from migraines to post-surgical acute pain. The company is on track to earn $225 million on $845 million in revenue this year; those profits represent a 52% increase over 2004. Endo’s top seller right now is the Lidoderm analgesic patch, followed by generic versions of the powerful painkiller OxyContin, and a long-acting morphine intended for pre- or post-surgery.
Headwaters (HW)
Fastest-Growing Companies Rank: No. 58
There are few commodities in shorter supply these days than oil and cement. Now imagine a public company that offered potential solutions to both of these shortages. Headwaters gets its $774 million in revenue from two main businesses: a construction-materials unit that generates most of the cash flow and an energy-technology division that generates much of the excitement.
LifeCell (LIFC)
Fastest-Growing Companies Rank: No. 16
With a market cap of less than $700 million, Lifecell is the second-smallest stock among our picks—and probably the most speculative. Just two products account for a whopping 87% of the biotech company’s $67 million in revenues. Lifecell’s flagship products, AlloDerm and GraftJacket, are surgical substitutes for human skin and tendon used for burn treatment, repair of diabetic foot ulcers, post-mastectomy breast reconstruction, and more. Lifecell is expensive, but after boosting earnings 117% last year, Lifecell is on pace for a 200% gain in 2005.
Meritage Homes (MTH)
Fastest-Growing Companies Rank: No. 89
Despite near-ideal business conditions in the home-building market, all builders are bearing the cross of housing bubble fears—fears we think are exaggerated. Meritage is on track for 83% earnings growth this year—up from 42% in 2004—and yet it has a utility-like P/E of nine. Nevertheless, Meritage’s appeal goes beyond valuation. 53% of net new growth in housing stock will come from the four states that accounted for 96% of Meritage’s revenues in the most recent quarter, according to A.G. Edwards analyst Greg Geiber.
Penn National Gaming (PENN)
Fastest-Growing Companies Rank: No. 92
Penn National is a gambling company, but don’t buy its stock expecting a jackpot return. But with sales of $1.1 billion, Penn is a well-run regional casino and racetrack operator that trades at an inexplicable discount to some of its slower-growth peers. Merrill Lynch analyst David Anders expects earnings to climb 51% this year and another 35% next year.
Sonic Solutions (SNIC)
Fastest-Growing Companies Rank: No. 14
Does your teenager like using his computer to burn homemade CDs? Well, odds are he’s using Sonic software to do the burning. Sonic saw sales rise 59%, to $91 million, in the four quarters through March 31; earnings rose 59% in 2004, and the company figures to post a 65% profit gain in 2005. Sonic now has deals with Dell and Hewlett-Packard to distribute its DVD-player and CD/DVD-burner software on new PCs and laptops.
For every Dell or Nike that turns early promise into global dominance, there are hundreds of other highfliers that end up being huge disappointments for shareholders. We can’t guarantee another Dell, but we did find seven companies we believe have the best odds of making good on their potential.
What’s hot in business (all things energy, these days) isn’t always the best way to pick what’s smart for your portfolio. Here we separate the flashes in the pan from those truly poised for stock market success, based on valuation, PEG ratio, and accelerating profit growth. We also eliminated companies that have been publicly traded for fewer than five years.
Apache (APA)
Fastest-Growing Companies Rank: No. 99
Helped by improved oil production from the North Sea and unexpectedly strong gas production out of Canada and Egypt, Apache is expected to expand its total energy output by 8% this year and 9% in 2006. That, combined with fast-climbing energy prices, has translated into huge earnings gains for Apache—56% through the first half of this year.
Endo Pharmaceuticals (ENDP)
Fastest-Growing Companies Rank: No. 56
Home to Percocet, Endo’s specialty is pain medicine: It offers branded and generic drugs for everything from migraines to post-surgical acute pain. The company is on track to earn $225 million on $845 million in revenue this year; those profits represent a 52% increase over 2004. Endo’s top seller right now is the Lidoderm analgesic patch, followed by generic versions of the powerful painkiller OxyContin, and a long-acting morphine intended for pre- or post-surgery.
Headwaters (HW)
Fastest-Growing Companies Rank: No. 58
There are few commodities in shorter supply these days than oil and cement. Now imagine a public company that offered potential solutions to both of these shortages. Headwaters gets its $774 million in revenue from two main businesses: a construction-materials unit that generates most of the cash flow and an energy-technology division that generates much of the excitement.
LifeCell (LIFC)
Fastest-Growing Companies Rank: No. 16
With a market cap of less than $700 million, Lifecell is the second-smallest stock among our picks—and probably the most speculative. Just two products account for a whopping 87% of the biotech company’s $67 million in revenues. Lifecell’s flagship products, AlloDerm and GraftJacket, are surgical substitutes for human skin and tendon used for burn treatment, repair of diabetic foot ulcers, post-mastectomy breast reconstruction, and more. Lifecell is expensive, but after boosting earnings 117% last year, Lifecell is on pace for a 200% gain in 2005.
Meritage Homes (MTH)
Fastest-Growing Companies Rank: No. 89
Despite near-ideal business conditions in the home-building market, all builders are bearing the cross of housing bubble fears—fears we think are exaggerated. Meritage is on track for 83% earnings growth this year—up from 42% in 2004—and yet it has a utility-like P/E of nine. Nevertheless, Meritage’s appeal goes beyond valuation. 53% of net new growth in housing stock will come from the four states that accounted for 96% of Meritage’s revenues in the most recent quarter, according to A.G. Edwards analyst Greg Geiber.
Penn National Gaming (PENN)
Fastest-Growing Companies Rank: No. 92
Penn National is a gambling company, but don’t buy its stock expecting a jackpot return. But with sales of $1.1 billion, Penn is a well-run regional casino and racetrack operator that trades at an inexplicable discount to some of its slower-growth peers. Merrill Lynch analyst David Anders expects earnings to climb 51% this year and another 35% next year.
Sonic Solutions (SNIC)
Fastest-Growing Companies Rank: No. 14
Does your teenager like using his computer to burn homemade CDs? Well, odds are he’s using Sonic software to do the burning. Sonic saw sales rise 59%, to $91 million, in the four quarters through March 31; earnings rose 59% in 2004, and the company figures to post a 65% profit gain in 2005. Sonic now has deals with Dell and Hewlett-Packard to distribute its DVD-player and CD/DVD-burner software on new PCs and laptops.
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