Two Leaders in a New Growth Era
01/02/2008 12:00 am EST
Louis Navellier, editor of Blue-Chip Growth, thinks one household name and one up and comer will profit from a new renaissance of growth stocks.
Clearly, the "seismic shift" from value into growth continues. Wall Street's style shift from value into growth should last for quite a long time. When a previously strong asset class goes out of style, the money fleeing the asset class via mutual funds can ignite hideous capital gain distributions for the shareholders left behind. This is just another reason why, when style shifts occur, they often snowball and last for years.
Now let's take a look at [two] new buys:
PepsiCo (NYSE: PEP) is the world's second-largest carbonated soft drink maker. The company's soft drinks include Pepsi, Mountain Dew, and Slice. PepsiCo also sells Tropicana orange juice brands, Gatorade sports drink, Aquafina water, Dole juices (licensed), and Lipton ready-to-drink tea (licensed from Unilever).
Though the company is hugely successful in the drink industry, it offers much more than thirst-quenching products. PepsiCo also owns Frito-Lay, the world's number-one maker of snacks such as corn chips (Doritos and Fritos) and potato chips (Lay's and Ruffles). The company's Quaker Foods division offers breakfast cereals (Life), pasta (Pasta Roni), rice (Rice-A-Roni), and side dishes (Near East). Hungry yet?
Along with Colgate-Palmolive (NYSE: CL) and McDonald's (NYSE: MCD), PepsiCo will profit from the weak US dollar and strong growth in the global economy. The company is characterized by fat operating margins that continue to expand, which have helped its earnings grow at a 40.7% annual pace and post better-than-expected results.
PEP trades at barely 20x forecasted earnings, which is actually quite low for a company with so many name brands. The stock is a great Conservative buy below $84. (It closed 2007 below $76-Editor.)
First Solar (NASDAQ: FSLR) makes solar-power modules with a thin-film semiconductor technology that does not use silicon. A worldwide shortage of polycrystalline silicon is holding back some producers of silicon-based solar cells, which cannot get enough raw materials to meet demand; however, First Solar is doing just fine.
The company uses a sheet of glass as a substrate, coated with a film of cadmium telluride, for its products. Nearly all of the company's sales of solar modules are to five primary customers in Germany. The company recently announced that it acquired commercial solar project designer Turner Renewable Energy LLC for about $34.3 million in stock and cash. Turner is expected to operate as a unit of First Solar under the name First Solar Electric LLC.
In addition to that great news, First Solar has very fat operating margins of 29.1%, which continue to expand and have helped its earnings grow at a 166.7% annual pace. The estate of John Walton (of Wal-Mart's Walton family) owns 54% of First Solar's outstanding stock, which is a great Aggressive buy below $294. (It closed 2007 above $267-Editor.)