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Long/Short Investments in L/S Equity: Valuation and Ideas,

429 Stocks Expected To Grow Earnings By 15%+ Per Year

The value of a business is the amount of cash you can extract from it over its life discounted back to the present. Earnings is the primary component of what counts as cash flow.

Though there are other components – cash flow is defined as: net income + depreciation/amortization +/- ∆working capital – capex.

Capex, naturally, is used to increase future earnings potential. In the long-run, stocks will predominantly trade off earnings, which focuses the bulk of attention on what a business’s earnings potential will be in the future.

The following 429 stocks are projected to increase their earnings by more than 15% year-over-year for at least the next three years. Note that future expectations are already embedded within a stock’s price, so therefore it is still critical that these companies fulfill this growth or share prices will be punished accordingly.

As such, this doesn’t represent a list of “recommended” stocks but rather companies expected to expand their earnings potential over at least the next few years.

Do “growth” stocks outperform “value” stocks?

There’s no evidence of such. Naturally, growth stocks have lagged behind value stocks since 2000 due to the dot-com crash that disproportionately hit higher-growth companies due to overestimations regarding their future earnings potential.

Consequently, since October 2000, when the SPY, SPYG (growth ETF), and SPYV (value ETF) began trading simultaneously, value stocks have done a bit better:

Since the market bottom on March 9, 2009, growth has done a bit better by about 200 basis point in annualized returns.

This should be the expectation given that growth stocks are “higher beta.”

In a downturn you might accordingly expect that might fare worse on average. However, from the previous market top on October 9, 2007 to the bottom on March 9, 2009, this didn’t turn out to be the case.

Growth stocks actually outperformed their value counterparts. In the end, it largely boils down to what is happening in the economy. Real estate was hit hardest in the last recession and REITs, homebuilders, financial institutions, and other companies associated with the industry typically fall into the “value” bucket, leading to their underperformance.

With that said, below are 429 companies expected to grow earnings by at least a 15% pace over at least the next three years. All companies have a market capitalization of at least $1 billion.