Unless you’re a very conservative investor, allocating at least a part of your portfolio to growth stocks is a smart idea. Growth stocks provide investors with the potential for solid gains. While many retreated late last year as we saw a rotation into value stocks, growth stocks have come roaring back.
Since March 8th, the SPDR S&P 500 Growth ETF (SPYG) has gained over 28%, compared to an 18.4% gain for the S&P 500. As the second-quarter earnings season came to an end, one thing we learned is that many companies are rapidly accelerating their earnings or sales growth. Even as the Delta variant of COVID is wreaking havoc on some states, the economy continues to move along.
The Fed’s assertion that inflation is transitory also appears to be correct, which is great news for growth stocks. That’s why investors should consider growth companies such as HCA Healthcare, Inc. (HCA), Zebra Technologies Corporation (ZBRA), and Dillard’s, Inc. (DDS) that are rated a Buy or higher in our POWR Ratings system.
HCA Healthcare, Inc. (HCA)
HCA is a Nashville-based healthcare provider organization operating the largest collection of acute-care hospitals in the U.S. The company owns and operates 185 hospitals, 121 freestanding outpatient surgery centers, a broad network of physician offices, urgent care clinics, and freestanding emergency rooms.
The company is seeing a bounce back in sales due to a surge in admissions and an increase in outpatient surgeries and other procedures. For instance, in the first six months of 2021, HCA’s sales rose 18.7% year over year. Outpatient surgery cases during this time jumped 24.2% year over year. Even with the Delta variant of COVID wrecking havoc, revenues are expected to continue increasing due to the surge in admissions.
Due to a solid second quarter, management increased its current year revenue forecast to between $57 and $58 billion, up from its previous guidance of $54 to $55.5 billion. The company has also been growing through HCA acquisitions. This has led to an increase in patient volumes across several markets and added more hospitals to its portfolio.
In the second quarter, HCA bought Meadows Regional Hospital in Vidalia, GA, and the company expects to acquire two small hospitals in Nashville and Savannah. HCA has an overall grade of A, which translates into a Strong Buy rating in our POWR Ratings system. The company has a Growth Grade of A as earnings rose 35.3% year over year in the second quarter.
Analysts expect earnings to soar 102.6% year over year in the current quarter. HCA also has a Quality Grade of B due to solid fundamentals. For instance, the company had $1.1 billion in cash on hand at the end of the second quarter compared to only $253 million in short-term debt. We also provide Value, Momentum, Stability, and Sentiment grades for HCA, which you can find here.
HCA is ranked #1 in the A-rated Medical – Hospitals industry. For more top stocks in this top industry, click here.
Zebra Technologies Corporation (ZBRA)
ZBRA is a leading provider of automatic identification and data capture technology for enterprises. Its solutions include barcode printers and scanners, mobile computers, and workflow optimization software. The company primarily serves the retail, transportation logistics, manufacturing, and healthcare markets, where it designs custom solutions to improve efficiency for its customers.
The company had a strong quarter, where both its earnings and sales surpassed the consensus estimates. Earnings, in particular, rose 89.6% year over year on the back of sales growth and margin expansion. ZBRA should continue in upcoming quarters from strong demand for its printing and supplies.
The company is also seeing robust demand for enterprise mobile computing and RFID product lines. Management raised its sales growth target for 2021 from 18-22% to 23-25% year over year. For the third quarter, ZBRA expects earnings to be in the range of $3.90 to $4.10. This would indicate year-over-year growth of around 22%.
Like HCA, ZBRA has also grown through acquisitions. Last September, the company acquired Reflexis Systems, which augmented ZBRA’s software offerings. The company is expected to acquire Fetch Robotics in this quarter, allowing ZBRA to offer advanced robotics solutions to customers. The company has an overall grade of B and a Buy rating in our POWR Ratings system.
ZBRA has a Growth Grade of B, which isn’t surprising as earnings per share surged 89.6% year over year in the second quarter. Earnings are expected to rise 24.2% year over year this quarter. The company also has a Stability Grade of B, which means its growth and price performance have been consistent. For instance, its EBITDA growth has grown an average of 23.3% per year over the past five years.
For the rest of ZBRA’s grades (Value, Momentum, Sentiment, and Quality), click here. ZBRA is ranked #8 in the A-rated Industrial – Machinery industry. For more top stocks in this highly rated industry, click here.
Dillard’s, Inc. (DDS)
DDS is a large departmental store chain featuring fashion apparel and home furnishings. Its stores offer a large variety of merchandise and feature products from both national and exclusive brand sources. The company also operates a general contracting construction company, CDI Contractors, which includes constructing and remodeling Dillard’s stores.
The store’s merchandise includes both branded and private-label items. Its primary strategy is to offer fashionable and trendy products to attract customers. In the second quarter, both DDS’s top and bottom lines surpassed analyst estimates. This was actually the fifth straight quarter for the company, where its earnings beat expectations.
The company has been gaining from increased demand from consumers as more of the population gets vaccinated. DDS is also benefiting from its focus on inventory management. This started at the beginning of the pandemic, where the company implemented the cancellation, suspension, and delaying of shipments.
Management also pursued merchandise purchase reduction. These efforts to lower excess inventory supported the company’s margins. For instance, at the end of the second quarter, inventory declined 13% year over year. DDS has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings system.
The company has a Growth Grade of A as earnings per share soared from a loss of $0.37 to $8.81 in the second quarter. Earnings are expected to surge 209.8% year over year in the current quarter. DDS also has a Value Grade of A, which makes sense based on its valuation metrics. The stock has a trailing P/E of 9.43. To gain access to the rest of DDS’s grades (Momentum, Stability, Sentiment, and Quality), click here.
DDS is ranked #5 in the A-rated Fashion & Luxury industry. For more top stocks in this top-rated industry, click here.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years
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HCA shares were unchanged in premarket trading Tuesday. Year-to-date, HCA has gained 54.55%, versus a 21.95% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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