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Old 10-08-2011, 09:18 PM   Nav to Top  #1
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Money Looking for Cheap Growth

In my recent homework, I started looking for cheap growth stocks in anticipation that we will see something positive out of Europe in the upcoming week. Once this does occur, buyers are going to flood the market looking for all the red light specials as the market is immensely undervalued at current levels, but fear has trumped fundamentals in the last couple months.

In my search for cheap growth stocks, a bunch of cyclicals jumped on the list These names have been getting crushed as of late on doomsday rumors even though all these companies reported beautiful quarters and actually thought that growth wasn't going to be an issue in the upcoming quarters. That is the definition of a cheap growth stock; the entire market sells off and companies can say they are going to double in size and their stock price will still fall. Fear is a powerful driver of the market as it is quite difficult to not trade on emotions, even though it is quite important in being successful.

Cyclical cheap growth stocks
Some of the companies that have reported solid earnings and still been hammered making their valuations attractive are in the cyclicals. Caterpillar is a name that reported a very upbeat conference call and the stock currently sits at $75 a share but recently was under $70. If we can get another chance at an entry below $70, you have my approval. I would even think about purchasing a quarter position now, and buying on a scale if it drops another 5%. Caterpillar is not seeing any slowdown in global demand for commodities that they have the equipment to get it out of the ground. I would love to see a dividend raise announced this next quarter which would show how well they are operating. Once Europe has some sort of resolution, this company goes back to par.

The other name that has bounced back $10 in just the last couple trading days is my favorite of the cyclicals, Cummins. Cummins conference call iterated how this is one of the most cheap growth stocks out there. They own the natural gas big rig truck engines and this has secular growth written all over it. Waste Management, UPS, and many companies in Brazil and Russia are using these engines. I have a feeling once the natural gas engine becomes popular in regular cars, trucks and boats (lots of Cummins diesel engines in luxury boats), Cummins will have a big leg up on production of these engines adding a new revenue stream.

Other areas for cheap growth stocks
Other places to find cheap growth stocks will be in the autos and some commodity names. I have been saying all summer that if Ford got to $10 or below it was a bargain. ( They have the best active CEO now in Alan Mulally in my opinion after Apple's Steve Jobs stepped down (RIP) a few weeks ago. The company is continuing to penetrate the emerging markets after getting a late start behind GM. The company is dominating the US markets as of late, and have streamlined operations making the company much more efficient. The credit agencies even raised their debt outlook which is a tremendous positive for the company's balance sheet. Even recently there have been rumors that the common shares of Ford will start to pay a dividend again. All of this means this company is a very cheap growth stocks making it highly attractive. I have traded this stock over the last couple years pretty successfully and I think it is going to have a 50% move to the upside in the next 6 months.

The last place I feel there is cheap growth stocks is in some commodities. Copper has been beat up quicker than Mike Tyson by Buster Douglas many years ago. It has been in freefall and with it took the copper names. I think this has already started a reversal and is the most positive sign for the markets. Copper has been one of the best leading indicators for markets throughout the last 30 years. The best part of the copper names are they have yield. My favorite two names are Southern Peru which I own and Freeport McMorran. Freeport has gold as well, but much higher concentration in copper. Freeport also has a 3% yield and has already bounced 20% off its lows recently. Southern Peru has a massive 10% yield and is also roughly 20% off its recent lows. Southern Peru is the most efficient low cost producer of copper making it my favorite because it has a very yummy dividend to make me sleep better in case I am wrong. And yes, the dividend is safe.

If we get the positive news out of Europe next week since it seems like Germany is taking the lead in the negotiations, I feel a major snapback coming where we want to make sure we have our shopping list of names that will slingshot higher the most. These companies are all cheap growth stocks highlighted on recent conference calls and earnings announcements.

Good Luck,

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