3 Lesser-Known Growth Buys

05/11/2012 11:00 am EST

Focus:

Richard Moroney

Editor, Dow Theory Forecasts

If you are in the market for solid growth stocks, any or all of these three stocks are great choices, writes Richard Moroney of Upside.

Founded in 1938, Dillard’s (DDS) sells an assortment of moderately priced apparel, cosmetics, and home furnishings through more than 300 stores in 29 states, mostly in the South and Midwest. In fiscal 2012 ended January, the women’s business generated 37% of revenue, followed by men’s apparel at 17%.

The stock earns a Quadrix Overall score of 98 (of 100), reflecting strong scores for Momentum (93), Value (80), and Performance (87). For fiscal 2013, the two-analyst consensus calls for per-share earnings of $5.38, implying 24% growth.

On April 12, Dillard’s extended its $1 billion line of credit, which should allow the company to direct its strong cash flow toward the retirement of higher-interest debt and stock buybacks. Over the last 12 months, per-share cash flow from operations increased 20% to $9.56.

Through January, the company had repurchased roughly $222 million in stock through a buyback plan initiated in May. In February, Dillard’s authorized the repurchase of another $250 million of its stock. Dillard’s is being initiated as a Buy.

Robbins & Myers (RBN)
A leading supplier of engineered components and equipment, RBN serves the energy, chemical, and pharmaceutical industries. Roughly 63% of sales are to the energy sector, and more than two-thirds of overall revenue originates in North America.

Strong demand in the oil sector has offset weakness from natural gas producers. Oil companies are aggressively developing domestic shale formations, increasing the need for the company’s drilling gear. Robbins & Myers is also benefiting from increased manufacturing capacity, restructuring initiatives, and contributions from acquisitions.

Robbins & Myers shares have been volatile over the past year, partly reflecting worries about the impact of weak natural gas prices. But considering the company’s growth outlook and solid finances, the stock seems capable of climbing 20% in the year ahead.

On February 29, the balance sheet had virtually no debt and net cash per share of roughly $3.50. For fiscal 2012 ending August, consensus estimates project a 48% increase in per-share earnings, to $3.53. The stock is being initiated as a Buy.

TAL International (TAL)
This companyis positioned for strong growth. Based on total fleet size, the company is the fourth-largest lessor of freight containers in the world, with an estimated 12% market share.

An extensive global operating infrastructure, longstanding customer relationships, and a strong presence in growing Asian markets should drive sales and earnings. TAL’s client list includes the 25 largest global shipping lines, while roughly 41% of annual revenue originates in Asia. A tight supply of shipping containers bodes well for near-term pricing and profit margins.

The shares offer plenty of upside given recent operating momentum, strong Quadrix scores, and a modest valuation. At less than 11 times trailing earnings, the stock trades at a 34% discount to its five-year average P/E ratio.

For 2012, the consensus calls for per-share earnings of $4.13, implying 6% growth, while estimates have risen sharply in the past three months. Revenue is expected to increase 9%. TAL, which yields 5.4%, is being initiated as a Buy.

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