3 growth stocks for September
Don’t be afraid of the big bad wolf called the month of September. While it’s true that historically stocks don’t do well during this month, the more important factor is where we are in the business cycle.
After a recession, analyst estimates tend to be too low. With demand lower and companies operating on very tight budgets, the spring is coiled for big profit percentage gains. It happens at this stage of every bull cycle.
This time will be no different. In fact, one could argue that given the severity of the recession and crisis, the spring is tightly wound. When uncoiled, watch out.
The benefits that will accrue to those willing to get in at this time far outweigh the witches watching the calendar. I prefer to stick to economics and valuation.
I want to own growth in September. Here are three names to consider.
The companies that will do the best going forward are those companies with real business models that are generating real profits. More importantly, investors will likely pay a premium for growth. That means you need to do your buying before prices are bid higher.
Growth Stock #1 — Arena Resources (ARD)
This one is easy: if you believe oil and natural gas prices are going higher, as I do, then buying Arena Resources is a no-brainer.
Like Chesapeake Energy (CHK), one of my Top 10 Stocks for 2009, ARD develops oil and gas properties focusing on Oklahoma, Texas and New Mexico. At the end of last year ARD had proven reserves of approximately 65 million barrels of oil equivalent. At peak oil prices last summer, investors paid more than $50 per share for ARD. Today, you can buy shares for around $30.
It’s undeniable that oil and gas are finite resources. As such, any growth in demand will be accompanied by increases in price. What has been missing over the last 12 months is global economic strength. But that was yesterday. Today, we’re looking over a horizon that is much more promising. A stronger economy across the planet is likely to result in higher oil and gas prices. $100 per barrel of oil is not out of the question. If that is the case, $50 per share, or more, is likely for ARD.
Growth Stock #2 — Lululemon Athletica (LULU)
Lululemon Athletica is in the business of making and selling athletic apparel. With a wide range of fitness items, the company has managed to navigate the recession in fine form.
Over the last four quarters, the company has earned 48 cents per share. For the current fiscal year ending in January, LULU is expected to make 51 cents per share. Analysts expect the company to make 64 cents per share in the following year. Revenues are estimated at $370 million this year and $415 million next year.
Shares of LULU have recovered nearly 100% of the value lost since the start of the credit crisis in November of 2008. Now poised for economic growth, I expect this highly popular brand to explode over the next two years.
While investors today pay a slight premium for that growth, LULU is the kind of company that can easily blow through expectations. What may seem expensive today can look awfully cheap if earnings beat estimates. The emphasis on health and fitness bodes well. If you do buy the stock, you might consider taking a yoga class on one of LULU’s trendy yoga mats.
Growth Stock #3 — Starent Networks (STAR)
Smartphones are all the rage. With Apple’s iPhone and Research in Motion’s Blackberry, growth in smartphones is likely to follow a trajectory similar to that of the personal computer. In other words, everyone is going to be using one of these things. Starent Networks Corp. provides the hardware and software for mobile devices to act smart.
It’s a huge growth area, as evidenced by STAR share price growth over the last year. Unlike most stocks, STAR trades at a price higher than where shares traded prior to the market collapse last fall. That appreciation makes STAR a bit expensive, trading at some 20 times trailing and forward earnings.
The value play currently is in the expectation that earnings are likely to beat estimates. The smartphone phenomenon is going to be bigger than many think, justifying paying a higher price for STAR today.
Don’t listen to all the pundits out there who would have you “sell, sell, sell” in anticipation of the historically poor-performing month of September. Instead, make the contrarian play by owning stocks. Buy on the dips, and get yourself invested in a market that is only now beginning a new up-cycle.
ARD, LULU and STAR are three growth stocks to consider buying now — get the names of two more top growth stocks here.
And don’t forget to check out my Top Stocks tracking portfolio at Wall Street Survivor.
At the time of publication, James Dlugosch did not own shares of ARD, LULU or STAR in personal or client portfolios.
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