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Old 08-29-2011, 09:41 PM   Nav to Top  #1
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Money Putting Secular Growth Names on Shopping List

Last night I gave you some examples of ”best of breed” companies; tonight I want to talk about secular growth stocks. The best of breed names need to be in anyone’s portfolio as a stable core base. If you can add some yield to that base, you have a great start to a portfolio. Now something else everyone long portfolio needs is a strong secular growth stock. When the market is in bull mode, these growth names can really add some horsepower to your portfolio. The definition of a secular growth stock is one that has earnings and revenue momentum regardless of how the economy is doing.

I spoke about how I felt the best of breed names from last night would end the calendar year 30% higher than their values as of Friday. That is a healthy 4 month gain. If we end the year in the mid 1300′s on the S&P like I have said since May, I think some of these secular growth names can be up a lot more.

Recent Growth Stocks
Apple has been the prime example of a secular growth name over the last 7 years. Every quarter they seem to blow through estimates and continue to grow tremendously in their last quarter when they are already have the second largest market cap. Another name that stands out as a secular growth stock is Green Mountain Coffee Roasters. Even during the worst of the 2009 lows, this company just kept doubling sales year over year by its dominance of the K-cup coffee market as it owned the only coffee maker for the design. This allowed the company to trounce the market averages. I have been lucky enough to hold this growth stock for the majority of its run up and it has made me sleep so much better at night.

Secular Growth Stocks
Some examples of companies that I feel are well positioned for strong growth that could really make for big gains in the next quarter are Netflix, Lululemon, Decker’s Outdoors, and SodaStream.

Netflix has been a name I have traded quite a bit. I talked about in the spring time that I felt the company was due for a correction and an entry point would happen before the end of August. I wrote again about 2 weeks ago how I felt it trading at the low 200′s was a great starting entry point. Today it ended up at $225 and I think it still has a bunch of upside as its 52 week high is $304 a share. The company just recently had its quarter criticized because of costs; but it also announced that it was moving internationally. This will show growth. The company now trades at a much more reasonable market cap of $11 Billion and has a forward PEG ratio in the low 1′s compared to being at 2 at its 52 week high. On top of having the growth needed to still be labeled a secular growth stock, it also has the potential of being a takeover target as it seems like the big three in tech; Apple, Google, and Microsoft; are continuing to position against each other in multiple areas. Any one of these could pay all cash for a big premium on the current Netflix price.

Lululemon and Decker’s Outdoors are in the business of specialty clothing. Lululemon in yoga and exercise apparel; while Decker’s specializes in shoes with its Uggs and Teva brands to name a few. Both of these names have tremendous growth even though there have been consistent talks for years of the consumer being strapped for disposable income. One could never tell by listening to either of these companies conference calls the last couple years. That definitely labels them as secular growth stocks, and they still have a couple more years of continuing the trend. Lululemon only has a market cap of $7 billion and Decker’s having a $3 billion market cap. This also makes these names a takeover target from the likes of a Nike or VF Corp.

The last name I want to mention is the one with the highest risk/reward outcome. The company is SodaStream International. In full disclosure I am still holding onto quite a bit and have been adding to my position as it kept moving lower bringing my cost basis down to $41. Currently the stock trades at $37 and has brought its valuations down to very cheap levels, even after today’s 7 point move. I have put my money where my mouth is on this one and am definitely in the red to date on this name; but I feel strongly in its growth stock potential and feel I will be happy about my move when it is all said and done. I still feel this company has a similar business model to Green Mountain which I know very well. It too had a bumpy road when it had a market cap under 1 billion. Sodastream currently is in the $700 million range giving it a huge upside potential. This is a possible 10 bagger if it can execute. Notice I said possible; I am not saying with 100% knowledge it will be a 10 bagger, but it has the chance to, which many growth stocks do not. This name could end the year in the $60′s or higher very easily if we achieve that S&P target of the mid 1300′s.

Now even with all these positive outlooks, I am not saying to go run out and buy these names tomorrow. Do your homework and find an entry point. We were up big today, at some point the market will take a break. We have not had any negative news out of the European banks and any news from there could end this rally in a heartbeat. We also have a jobs report on Friday that in my opinion will be the determining factor if we stay volatile or start an upward trend to the end of the year. Remember to stay diversified in any portfolio, but especially a long one in an uptrend. Keep some best of breed names as a core, have some yield, and definitely have a secular growth stock in the mix to add some horsepower to your returns!

Good luck!


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