3 Well-Priced Growth Stocks

01/11/2013 7:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Some would say all growth stocks are well priced since income is the hot sector but these three offer soild growth for years forward and two kick off a little income as well notes Richard Moroney of Dow Theory Forecast.

Per-share profits at American Express (AXP) are projected to rise 9% in 2013, slower than the 12% median growth projected for diversified financials in the S&P 500. But AmEx is a well-managed company in an industry that still has many investors skeptical. Within the industry, AmEx consistently ranks in the top three in return on equity. Moreover, AmEx's cash from operations has exceeded net income in 19 of the past 20 quarters, a sign of earnings quality.

Recent per-share-profit growth stems from steady, if modest, sales growth, consistent expansion of operating profit margins, and stock buybacks, which have trimmed the share count by more than 4% in the past year. AmEx is a Buy.

Largely because of its Latin American business, DirecTV (DTV) is projected to outgrow the S&P 500 media industry in 2013, topping the median for both revenue and per-share profits. Yet the stock trades at less than 10 times estimated earnings, below its peer-group median of 13.

In the U.S., DirecTV expects programming costs will keep rising next year. The company plans to push through rate hikes averaging 4.5% in February to recoup a portion of those costs. The consensus projects per-share-profit growth of 12% in the December quarter and 23% this year.

Look for management to update investors on 2013 guidance in February. DirecTV is a Buy.

UnitedHealth Group (UNH) estimates that it holds an 11% share of the Medicaid market and about 23% for Medicare. The company also commands a 16% share of the commercial medical-insurance market. In November, the insurer gave 2013 guidance for per-share profi ts of $5.25 to $5.50. Wall Street
appears to regard that outlook as overly conservative, as the consensus has fallen just $0.02 to $5.56 since the announcement. UnitedHealth has topped the consensus profi t estimate by more than 4% in each of the last 15 quarters.

The insurer sees 2013 cash from operations of $7.2 billion to $7.6 billion, implying growth of 3% to 9% and representing 1.3 times net income, consistent with its 2012 ratio. Trading at 10 times estimated 2013 earnings, 30% below the median for its peer group, UnitedHealth Group is a Buy.

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