3 Screaming Growth Buys

04/13/2012 9:30 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

A bank, a consumer electronics firm, and a cuttin- edge health care company comprise the trio below that are primed for growth in comng quarters, writes Richard Moroney of Upside.

Headquartered in Virginia, Cardinal Financial (CFNL) serves the Washington metropolitan area through 27 offices. The company also operates a residential mortgage-lending business with ten locations, and offers trust, brokerage, and asset-management services.

Cardinal posted impressive results in 2011, with per-share earnings up 52% to 94 cents. Total assets soared 26%, deposits rose 15%, and loans held for investment increased 16%.On December 31, nonperforming assets as a percentage of total assets were a reasonable 0.69%.

For 2012, Wall Street expects per-share earnings of 95 cents, up 1%. That figure seems low given the company’s operating momentum. Cardinal is being initiated as a Buy.

Dolby Laboratories’ (DLB)
This company'subiquitous audio-enhancing technology is found in a broad range of consumer electronics, including television sets, video-game consoles, and computers.

Founded in 1965, the company boasts a strong competitive position, and is gaining ground in the burgeoning smartphone space. Its technology can be found in more than 120 phones from 15 manufacturers, including Nokia and LG.

An estimated 15% of smartphones will include Dolby technology this year, up from a negligible percentage last year. Dolby’s sales are mostly derived from licensing agreements with electronics makers.

Dolby has a bigger market capitalization than a typical Upside recommendation. But the stock is an aggressive holding, vulnerable to bad news regarding consumer spending, particularly for personal computers.

Investors are concerned that licensing revenue could stall if the company fails to gain traction in new markets. Wall Street expects per-share profits to decline 7% to $2.56 in fiscal 2012 ending September. Revenue is expected to dip 1%.

But Dolby has a history of beating the consensus, and the shares seem cheap with a Value score of 83. Moreover, Dolby has no long-term debt and cash of about $9 per share. Dolby is being initiated as a Buy.

eResearch Technology (ERT)
This is a leading provider of cardiac-monitoring services to pharmaceutical firms that are conducting clinical trials. In addition, the company’s respiratory solutions are used to develop new compounds for the treatment of asthma, emphysema, and cystic fibrosis.

Notable customers include European drugmakers Novartis (NVS), providing 19% of 2011 revenue, and GlaxoSmithKline (GSK) with 13%. eResearch generates plenty of cash flow, and a healthy balance sheet provides a strong platform for growth.

For 2012, management targets per-share earnings of 45 to 53 cents. The consensus is 48 cents, implying 17% growth. Revenue should approach $200 million, up 9%.

Shares have rallied 42% since February 27, when eResearch delivered strong December-quarter results. Per-share earnings increased 17% on 9% sales growth.

Even with the surge, the stock seems reasonably valued at 17 times estimated 2012 earnings. eResearch is being initiated as a Buy.

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