Five Picks for a Watch List

09/11/2013 9:00 am EST

Focus: STOCKS

Stephen Quickel

Editor, US Investment Report

Given the stock market's mild correction, our Buy and Strong Buy ratings must be tempered a bit. For now, this is really a Watch List for the next rally, suggests Stephen Quickel, of US Investment Report.

Our buy ratings will apply when the market correction bottoms out and stocks head into a confirmed rally.

Nevertheless, in the meantime, a very strong Watch List it is. These recommendations have far outperformed the market during the August correction, and over other benchmark periods.

What all of them have in common are: 1.) expectations for very rapid three-to five-year earnings growth averaging over 21%, and 2.) attractive price valuations relative to those growth prospects.

First and foremost, we like Equinix (EQIX) of Redwood City, CA, the data center pioneer we discovered at $50 four years ago and rode to $220 last spring.

Strong in all key revenue-driving niches, including cloud and interconnect, we foresee 25% a year earnings growth and possibly advance from $175 to $235, with 13 of 16 analysts calling EQIX a strong buy.

Two other choices are engineering and construction leaders with 20% to 25% a year earnings growth estimates by analysts following them: Dycom Industries (DY) and MasTec Inc. (MTZ). Both are off their highs but trade at rock-bottom PEGs around 0.65.

With crude prices looking stronger, we're adding two oil services stocks: Tetra Tech Inc. (TTI), which specializes in wellhead services, and much larger Weatherford International (WFT), which provides a full range of services worldwide.

Both oil services stocks offer 25%, plus earnings growth, and trade at bargain-basement PEG ratios of 0.42 and 0.46.

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