Fast Growers - What Are Your Top 5 Picks Today?

[Viking]

The stock market has sold off big time YTD, with the S&P down +25% and the Nasdaq down +30%. So we know stocks are cheap. Yes, they could get cheaper. But for an investor with a 5 year time horizon, buying stocks at current prices should deliver acceptable returns. 
 

i am re-reading Peter Lynch’s One Up On Wall Street. When constructing his portfolio his largest weighting went to “fast growers” and he set a limit of 30-40%. He defines fast growers as “small, aggressive new enterprises that grow at 20-25% per year.” This is the land of the multi-baggers.

 

Here is what i am looking for:

1.) growth target to 15-20% per year (i am watering down Lynch’s target a little).

2.) quality management - considered among the best in their industry

3.) stock selling at good price - my guess is most companies pass this hurdle today

 

So what are your top picks? Do you have 5 you think are super well positioned? The problem i have is most of the companies i follow closely today fall into other Lynch buckets like cyclicals (oil), stallwarts or turnarounds (this is where i would put Fairfax). So i am looking for ideas of companies to start to research (companies others on the board have pretty high conviction in going forward). 
 

Here is where i have started to put some money over the past week:

1.) Alphabet

2.) Amazon (not Google)

- are these two picks large enough in size that they should now be considered stallwarts?

3.) cyber etf - CIBR

4.) cloud etf - SKYY (includes 1 and 2 above)

5.) semiconductor etf - SOXX (Should this by in Lynch’s cyclical bucket?)

- i am cheating with the above three picks… because i like the sectors (full of fast growers) but have no idea who the best positioned companies are.

————-

i have begun a starter position in CSU - constellation software. Canadian company with pretty impressive track record. Not terribly cheap.

Edited October 16, 2022 by Viking

[Gregmal]

Alphabet is Google. You mean META?

[Viking]

I meant to write Amazon. Thanks for catching that. I do own a little META, given how hard it has been crushed and how much it is hated right now; but i would not have META as a top 5. 

[UK]

UMG: https://www.sec.gov/Archives/edgar/data/1811882/000119312521200767/d179734dex993.htm

 

 

 

[Gregmal]

Hamilton Thorne should do 10-15% growth. 

St Joe will be 20%+ for the foreseeable future 

Nintendo I can see surprising people as they seem to adopt integration of their content into new ventures. 
 

[james22]

PLTR

[no_free_lunch]

I have quite a few picks I could throw out but they are all discussed often on this board.  One you hear less often is VieMed (VMD.to).  Caters to air supply systems for home treatment of breathing issues.  Between an aging population and a desire to keep people out of hospitals they have strong secular tail winds.  Canadian based but focused on US market. They are not crazy cheap but then COVID hit their business model as they require meeting customers in person.  They are starting to bounce back, and analysts have them around 15-16x next year earnings.  Should be able to grow 15-20% per year going forward and historically have grown in the 20% range.

 

 

Edited October 16, 2022 by no_free_lunch

[Sweet]

IMO biotech is going to be a major growth area, I have a preference for the ETFs since picking biotech companies is mostly like a lottery.  I don’t have a position in a Biotech ETF currently but looking to build one.

 

Have an interest in Oxford Nanopore, small British DNA sequencing company that was put on the map by covid.  They really have two elements to their business, covid related revenue which is declining rapidly, and everything else life science related where revenue is growing rapidly.

 

Outside of that I think there is a good chance that growth slows dramatically in many companies and maybe the play is high quality dividend or buyback stocks.  Although, just as I type that, there is a lot of the world where living standards will rise significant in the next 50 years - 4 billion people… so idk

Edited October 16, 2022 by Sweet

[Spekulatius]

CRM and TSM come to my mind as profitable and growing 15% over time. TSM will not make 15% growth next year, but I think they can do it on average over the next 5 years.

[Minseok]

Aritzia ATZ - its a retailer growing 50% year over year, 80% in the US alone where they are still a small player. Very well managed company targetting a niche “everyday luxury” market. Yahoo finance posted PE is 32. Not terribly cheap but market does not think its too expensive, seeing as how recent downturn has not affected it too much (-14% from peak).

[n.r98]

2 minutes ago, Minseok said:

Aritzia ATZ - its a retailer growing 50% year over year, 80% in the US alone where they are still a small player. Very well managed company targetting a niche “everyday luxury” market. Yahoo finance posted PE is 32. Not terribly cheap but market does not think its too expensive, seeing as how recent downturn has not affected it too much (-14% from peak).

 

How are they putting up these crazy numbers in such a hostile environment, esp the high dd comp store sales? They're not a new brand either.

[Guest]

Am I dreaming? Viking is thinking about buying???

[IceCreamMan]

THRY

 

Management is targeting 35% annual revenue growth for the SaaS business over the next 10 years.

[LearningMachine]

I've combed through FDN & PNQI, and found only a handful that are giving money to owners instead of taking money from owners each year (i.e. dilution), while still having growth prospects.  However, they are too big to be 10-100 baggers. 

 

Now, starting to comb through VUG, which considers past & future EPS growth rate, return on assets, etc.  However, it also has a lot of things that you wouldn't want to own otherwise. 

 

Even though these ETFs have a lot of stocks you won't want, one potential benefit in a taxable account could be if you buy something at a low enough price, it could double over next few years, and then grow at a decent rate, including the capital that you would have otherwise given to the government.  Not feeling good about a lot of bad stocks in them though. 

 

That said, VIX is no where close to 60 yet, and FCF yield on a lot of stocks is still very low.  So, looks like we might have to wait some more time, but good to do all the homework during this time. 

Edited October 17, 2022 by LearningMachine

[Value_Added]

Japan Material 6055 looks interesting.  Been looking into a few Japanese companies since I’m stuck in yen due it’s drop versus the USD since selling my Shinoken position.

 

They are reliant on the memory business of Toshiba (Kioxia) which is a risk as it’s pretty much their main customer (although a very large player in the memory business), but their growth has been steady and they provide a high return on capital.  Quick summary is they have their hands in a few random businesses but their core business is providing high purity gas, water, and equipment to Kioxia.  They also began providing clean room management services within the Kioxia’s plants. 
 

I’m not very familiar with the inner workings of a semi conductor plant or how common it is to contract these services out, but it seems they may have found a niche will help them rise with the  tide of the industry.  

Edited October 17, 2022 by Value_Added

[WayWardCloud]

You could look towards South East Asia where tech growth has been decimated :

Grab (9B market cap)

GoTo (15B market cap)

Sea (23B market cap)

[Spekulatius]

7 hours ago, Value_Added said:

Japan Material 6055 looks interesting.  Been looking into a few Japanese companies since I’m stuck in yen due it’s drop versus the USD since selling my Shinoken position.

 

They are reliant on the memory business of Toshiba (Kioxia) which is a risk as it’s pretty much their main customer (although a very large player in the memory business), but their growth has been steady and they provide a high return on capital.  Quick summary is they have their hands in a few random businesses but their core business is providing high purity gas, water, and equipment to Kioxia.  They also began providing clean room management services within the Kioxia’s plants. 
 

I’m not very familiar with the inner workings of a semi conductor plant or how common it is to contract these services out, but it seems they may have found a niche will help them rise with the  tide of the industry.  

Dependency on one major customer is a big risk, especially in Japan. Also, Toshiba as a company is terrible sclerotic and is has been losing market share for ages in semiconductors. I think at one point, they were one of the largest semiconductor business in the world. now, they are just a shadow of their former self.

[Ross812]

I stumbled on Medifast - Med the other day. PE around 8 and likes to return cash to shareholders.

 

I also went fishing in the beaten up boating companies and  MarineMax - HZO looks interesting. 

[Pelagic]

1 hour ago, Ross812 said:

I also went fishing in the beaten up boating companies and  MarineMax - HZO looks interesting. 

 

Check out One Water. Both it and MarineMax should do well, ONEW has higher insider ownership and is executing very well. It's a large and highly fragmented industry, something like 4300 independent boat dealerships in the US. Plenty of room for HZO and ONEW to execute a roll-up strategy of independent dealers.

Edited October 17, 2022 by Pelagic

[Minseok]

16 hours ago, n.r98 said:

 

How are they putting up these crazy numbers in such a hostile environment, esp the high dd comp store sales? They're not a new brand either.

Its the management i suppose.
 

Brand and market:

You look to the aritzia shoppers and their psyche, their position in the market is unique and lacking competiton. Other retailers like gap/h&m discount their inventories to oblivion where as Aritzia tries to grow their brand and command the premium. Theyre not quite luxury tho so you still have a large segment to target. You visit their stores and theyre always so crowded. The one local to where I live is doubling the square footage and he demand is so high that they wont make a dent in the sales per square foot.

 

The target is also young women in 20-30’s who are making money for themselves so they dont want to settle for cheap clothes, but at the same time cant afford to fill their closets with LV/channel/hermes.

Store expansions:

USA has ten times the population of canada. Canada has 68 aritiza stores, USA has 33. I dont see anything fundamentally different about the culture/interests/behaviors among the target market among these two countries, so likely runway to 600+ aritizia stores in US is real.

 

Seeing how stores are placed in canda, the strategic placement of brick and mortar store are well done. In major malls, far apart, and boutique feel. The numbers are in the filings but basically couple of millions invested in a store will net you guaranteed revenue expansions. They have a back log of potential locations they are tackling at a pace they can absorb.

 

online sales:

The real upside surprise for Atz this year has been the online sales. They explain in the calls that where ever they open up shop, they see spike in online sales in that area. Its a relatively unknown store in the US so this explains that they are doing a good job building brand equity, and people are liking what theyre seeing.

 

Online sales are surging triple digits some quarters. Women in my family have shopped through their online channels and are liking it very much as well.

 

Conclusion:

Its really a play on a growing brand. It makes the stock especially difficult at the same time if you believe in the managemnt I think the reward will be especially great. Over the next decade or so you either get a lululemon/canada goose or failed  brands like forever21/american eagle/hollister.

 

[Red Lion]

5 hours ago, Ross812 said:

I stumbled on Medifast - Med the other day. PE around 8 and likes to return cash to shareholders.

 

I also went fishing in the beaten up boating companies and  MarineMax - HZO looks interesting. 

 

I've been watching this since 2019 and kicking myself that I haven't bought in. Thank you for reminding me, I think I'm going to take another look on this. It seems like its a multi level marketing weight loss product type business the last I remember, is this correct? 

[scorpioncapital]

Was Lynch talking about 20-25% cagr on revenues or profits? I can find a dime a dozen of money losing fast growers.

I don't think any really big company will meet this expectation. As for smaller ones, how do you know it will grow 20% cagr? easier said than done.

also I think the search of fast growth and low price may be a bad screen. We all know growth is gonna cost more. If you see a low p/e I am highly skeptical something isn't wrong with the growth rate. 

[Viking]

On 10/16/2022 at 6:14 PM, stahleyp said:

Am I dreaming? Viking is thinking about buying???

@stahleyp i am sitting at about 30% cash today. Today I lightened up on some of the stuff i bought last week (like US banks) given the nice pop we have seen the last 2 days (i was down to 15% cash at COB Friday). I am trying to keep my cash balance at min 20% so i can be opportunistic on the sell offs when they come. I am patiently waiting for oil to get taken out behind the woodshed again; would love to pick up CNQ under C$65 and SU under C$39 (again). Rinse and repeat (in my tax free accounts).
—————

thanks to everyone for the ideas they posted… lots of interesting opportunities to learn more about…

Edited October 18, 2022 by Viking

[Viking]

21 hours ago, scorpioncapital said:

Was Lynch talking about 20-25% cagr on revenues or profits? I can find a dime a dozen of money losing fast growers.

I don't think any really big company will meet this expectation. As for smaller ones, how do you know it will grow 20% cagr? easier said than done.

also I think the search of fast growth and low price may be a bad screen. We all know growth is gonna cost more. If you see a low p/e I am highly skeptical something isn't wrong with the growth rate. 

@scorpioncapital i think Lynch’s reference to ‘20-25%’ growth is kind of a holistic thing:

1.) significant revenue growth

2.) driving significant profit growth

3.) driving share price increase

 

With his fast growers, he was focussed on finding companies doing 1.) and 2.) which should lead to 3.) over time. With the caveat of paying a fair price for the stock up front. 

[Viking]

GS: Profitable growth stocks trading at bargain