Looks or money? Brains or beauty? Value or growth?
The world is full of false dichotomies. Some of them aren’t really mutually exclusive.
In the stock market, investors seek companies with good earnings growth (the growth school) and/or companies with bargain stock prices (the value school).
It is sometimes possible to find both in one stock. Right now I think D.R. Horton Inc., Skechers USA Inc., Taro Pharmaceutical Industries Ltd., Douglas Dynamics Inc. and United Therapeutics Inc. qualify.
Each of these stocks sells for 15 times earnings or less, putting them in the value camp in my book. They also show average growth of 12% or more in both sales and earnings for the past five years, which puts them in the growth category as well.
Track Record
Beginning in 2001, I’ve written ten columns on the subject of stocks that display both growth and value characteristics. The average one-year total return (including dividends) on my recommendations has been 19.27%, compared with 9.60% for the Standard & Poor’s 500 Index.
Nine of the ten columns have been profitable, and eight of the ten have beaten the S&P 500. I think this is evidence that it makes sense to look for stocks that have a foot in each camp.
Keep in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And past performance doesn’t guarantee future results.
Last year’s list was the only one of the ten that has failed to show a profit. It fell 4.8% while the S&P rose 6.0%. Chase Corp. (CCF), a little known industrial firm, returned 63.8%. But all four of my other picks fell, the worst loss being 26.9% in AmTrust Financial Services Inc. (AFSI).
The other miscreants were Apple Inc. (AAPL), Gilead Sciences Inc. (GILD) and Hibbett Sports Inc. (HIBB).
After a spill, they say it’s good to get back on the horse. Here are five new value-plus-growth selections that I believe will be rewarding.
D.R. Horton
I’ve been sweet on homebuilders for more than a year now. Many of them look attractive to me. Today I’ll focus on D.R. Horton (DHI, Financial), which has grown its sales at a 19% clip the past five years, and earnings at an even faster pace.
In contrast to Toll Brothers, which I recommended recently and which is known for high-end homes, Horton is more of a starter-home builder. In 2015 the average sale price of a new home in the U.S. was about $295,000; Horton’s was roughly $10,000 less.
Skechers
Skechers USA (SKX, Financial), based in Manhattan Beach, California, makes fashion footwear (especially sneakers) and other clothing. At about $24, its stock fetches half the price it did a year ago.
A quarterly earnings disappointment and some insider selling have hurt the stock. Yet there’s a case to be made here. Skechers has been profitable 13 of the past 15 years. Recently it has been earning about 19% on stockholders’ equity, which is praiseworthy in itself and relative to the company’s past history.
At 14 times recent earnings and a little more than 11 times estimated earnings, I find the stock attractive.
Taro Pharmaceutical
Based in Haifa Bay, Israel, Taro Pharmaceutical (TARO, Financial) is a mid-sized drug company. Its products are used in dermatological, cardiovascular, anti-inflammatory and neuropsychiatric treatments. Its sales have grown at a 19% clip and earnings faster than that.
The company is debt-free, which reduces risk and gives it strategic flexibility. It has been profitable in 14 of the past 15 years, with a sterling return on equity last fiscal year of more than 32%.
Douglas Dynamics
An old stock-market adage advises buying straw hats in January. So how about buying a maker of snowplows after the warmest winter on record?
I’m thinking of Douglas Dynamics (PLOW, Financial), based in Milwaukee, Wisconsin. At about $27 a share, it currently trades for 12 times earnings, versus a 10-year historical average of 19.
United Therapeutics
I have owned United Therapeutics (UTHR, Financial) twice for clients and do not own it currently. However, it still intrigues me.
This biotech company’s niche is the treatment of pulmonary arterial hypertension (PAH). It is also working on cancer therapy. Over the past ten years the stock has sold for an average of 24 times earnings.
Today it sells for only seven times recent earnings and nine times analysts’ estimates for this year. Like Taro, this company is debt-free.
