There have been a lot of worries about Brexit recently, however that’s no reason to stop investing. Given the uncertainty in Europe, growth companies here in the U.S. are high on my list of the best stocks to buy now, and I’ll get to those in a minute.
Nobody Knows Nothing
I was in my local Home Depot store recently, walking slowly down the aisle, trying to locate a particular item, when around the corner came a somewhat short, somewhat middle-aged man moving at somewhat high speed. Unlike me, who was moving slowly, this man was energized. His dark eyes had a hint of fire in them, apparently inflamed by some interaction he’d just had in the neighboring aisle. And as he passed me, he glanced at me and muttered, “Everyone thinks they know everything. Nobody knows nothing.”
I think he knows something.
Here’s what I don’t know.
I don’t know what’s going to happen next in Europe.
I don’t know when—if ever—the Fed will able to raise interest rates.
And I have no idea what’s going to happen next in our crazy Presidential election race.
But what I do know is this.
All this uncertainty means people today are worried.
And to me that’s a reason to be optimistic about investing!
Bull Markets Climb a Wall of Worry
The last time people were this worried was back in 2009, when the big fear was that failing banks would drag down the economy. Back then, many people took their money out of the bank and put it in a “safer” place. But the best place to put it then would have been the stock market, because since then the S&P 500 is up 210%!
I think we’re in a similar situation today.
Between Brexit, interest rates and the Presidential election, uncertainty is sky-high. Confidence is low. Interest in stocks is at rock-bottom levels. In short, these are the conditions that have prefaced every great bull market of the past century.
Now, I have no idea exactly how all of today’s problems will be solved. But I trust that they will be, because they always have been. Ingenuity does that!
Plus, if you’ve been investing for any length of time at all, you’ve probably heard the phase, “Bull markets climb a wall of worry.”
It’s absolutely true. When everyone is so worried that they’ve sold out of stocks, markets bottom. And as the worries slowly fade, investors creep back into the market and push stocks higher, simply because there are no more selling pressures.
So I think we’ve just passed an important market bottom and I believe the smartest thing you can do today is invest in great growth companies. More specifically, I believe the smartest thing you can do today—particularly given the uncertainty in Europe—is invest in great growth companies here in the good old U.S. of A.
Plus, today is Independence Day, commonly known as the Fourth of July!
So, without further ado, I present my list of stocks to buy now:
Five Patriotic Stocks to Buy Now
Five Below (FIVE) is a new kind of dollar store, selling common items targeted to teens and pre-teens for $5 or less—stuff like candy, electronic accessories, sports equipment, party and beach supplies, toys, room decorations and even some clothes and sandals. The stock is strong because not only is business good today, but investors are coming around to the view that the company is going to get much, much bigger in the years ahead.
The key here is store-level economics; Five Below’s new stores pay back their initial investment in a year or less (on average), which is allowing for a rapid expansion path. The firm is set to open 85 new stores this year, representing 19% store growth in total, and 15% to 20% store growth is likely for many years. Long-term, the top brass believes there’s room for a whopping 2,000 locations in the U.S., up from 458 at the end of April.
Given that its products aren’t dependent on the economy (they’re cheap, everyday items), success is mostly a matter of staying current on trends and management pulling the right levers.
Parsley Energy (PE) has all the characteristics of a big energy winner—if oil prices cooperate. Parsley owns lucrative acreage in the Midland Basin in Texas, with its wells in its key Wolfcamp areas churning out 40%-plus returns even at $45 oil. (Its wells are also the top performers in the Midland, so it’s in the best spot within one of the best basins in the U.S.)
Moreover, the firm has substantial oil hedges in place right through the first half of 2017, which is allowing Parsley to continue with its rapid expansion plan. Production grew 55% in total last year, and should grow another 40% to 60% in 2016, with oil output growing even faster than that.
As a proven cookie-cutter concept can continue to grow for many years, Ulta Beauty (ULTA), which offers a huge variety of beauty products and salon services through its 874 stores in the U.S., could be a huge winner.
Revenues have grown between 19% and 22% for each of the past eight quarters (with solid earnings growth during that time), and the latest quarterly report confirmed there’s more where that came from—management expects revenues to rise in the 15% to 18% range this year, with earnings up 20% or so as another 100 or so stores are opened. That even includes higher-than-expected capital spending to open “boutiques” within its stores for partners like Clinique, Lancome and Benefit.
Beyond 2016, the big idea is that market share will continue to shift from the big drug and department stores to firms like Ulta, which should produce years of solid growth ahead.
New housing construction is on the rise in the U.S. Combined with an equally healthy municipal and commercial construction backdrop, that’s good business for Vulcan Materials Company (VMC), a national provider of construction aggregates. As the U.S. housing sector has improved, so have Vulcan’s sales, reaching double-digit growth for a fifth straight quarter in December. In fact, 2015 was Vulcan’s best growth year since 2007: sales improved 14% from 2014, while earnings per share more than doubled.
The bottom-line improvement has been particularly dramatic: from 2010 to 2012, Vulcan’s EPS slipped into negative territory, and was just a couple pennies in the black in 2013. In 2014, EPS rocketed to $0.94, and last year they reached $1.96. Per-share earnings are expected to increase another 68% this year.
More Americans now search for the word ‘Zillow’ than the word ‘real estate.’ Those were the words of Zillow (Z) CEO Spencer Rascoff during the real estate website’s latest first-quarter earnings call. Zillow’s online traffic has been trending upward ever since the company bought out Trulia, its biggest rival, for $3.5 billion last April. More people are searching for houses online than ever—total traffic has grown by 55% in the last three years. And Zillow owns the lion’s share of that search traffic, with a 63% market share.
The company reported 25% pro-forma sales growth in the first quarter, and upped its full-year guidance to a range of $825 million to $845 million—well ahead of the $795 million consensus analyst estimate.
Note: These five stocks are all in uptrends today but they won’t be forever. So while you could just jump in today and take your chances, what I really recommend is that you get the latest advice of the man who wrote those recommendations over the past few months, Cabot’s own Mike Cintolo. As Senior Growth Analyst, Mike has his pulse on the top-performing stocks of the market every day of the week. His weekly Cabot Top Ten Trader is required reading of all investors/traders looking to get the biggest bang for the buck today, as it ensures that you’re always invested in the market’s hottest, highest-potential stocks.