While technicals matter most when it comes to entering or exiting a position, a company’s earnings growth is what draws the attention of institutional investors. These four companies are expected to continue delivering solid earnings performance, and are worth consideration for a watch list, writes MoneyShow.com contributor Kate Stalter.
During Monday’s market rout, a number of analysts and pundits weighed in with the view that “fundamentals don’t matter.” It’s true that even stocks with stellar sales, earnings, margins, and return on equity got pulled down in the vortex, along with everything else.
However, over the longer term, the best growth winners in bull markets hail from the ranks of companies that do sport outstanding fundamental growth.
The technical damage done to even market leaders is considerable at the moment, with even the fundamental leaders correcting from previous price highs.
Of course, the usual suspects among big growth leaders include companies with fundamental performance known to be outstanding. Those include Lululemon Athletica (LULU), Netflix (NFLX), Apple (AAPL) and Green Mountain Coffee Roasters (GMCR).
Those have gotten plenty of attention, and growth investors are aware of their track record and their potential for further price gains, once a new market uptrend emerges.
But there are also some top fundamental performers that don’t get so much media attention. Often, these are small- or mid-caps, and therefore are not held by as many institutions. Some of these lesser-known names with top-notch sales and earnings records can be good additions to a growth portfolio.
Diamond Foods (DMND), whose brands include Kettle potato chips, Emerald nuts, and Pop Secret popcorn, has grown earnings every year since 2007. In the past two quarters, profit was up 90% and 73%, while sales grew 40% and 61%.
Wall Street expects more tasty earnings growth ahead. Profit is pegged at $2.53 per share for 2011, and $3.10 per share in 2012. Those would mark year-over-year increases of 32% and 23%, respectively.
The stock went public in late July 2005, so it has youth on its side. Often, institutional investors jump into stocks that have gone public in the past decade or so, since newer names tend to be among the market’s best price performers.
Diamond has, of course, corrected along with the general market in recent weeks. It was probably due for a breather, having gained nearly 300% between January 2009 and July of this year.
If the fundamental story of this small cap remains intact, Diamond a name to watch for a fresh rally when the broader market stages its next run-up.
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