Growth stocks tend to outperform the broader markets during periods of economic recovery. This is evident in the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 30.3% returns year-to-date, versus the benchmark S&P 500 index’s 24.7% gains over this period. Strong consumer spending and favorable government policies have helped growth stocks to rally so far this year as the global economy bounced back from its pandemic-led recession.
However, most European countries are now re-imposing travel restrictions in the wake of a resurgence of COVID-19 cases. This raises concerns regarding the global economy’s recovery. However, the White House has been clear that it has no plans to shut down the economy because 82% of the U.S. population is vaccinated. This, coupled with the recently passed landmark infrastructure bill, should allow the U.S. economy to expand steadily in the coming months.
The conducive macroeconomic backdrop should allow growth stocks to generate momentum in the coming months. Thus, we think fundamentally-sound growth stocks TotalEnergies SE (TTE), Nucor Corporation (NUE), Ulta Beauty, Inc. (ULTA), and Steel Dynamics, Inc. (STLD) could be profitable bets now.
TotalEnergies SE (TTE)
Headquartered in France, TTE is an integrated oil and gas exploration and production company. It operates through four segments–Exploration & Production; Integrated Gas, Renewables & Power; Refining & Chemicals; and Marketing & Services. It also produces renewable energy through its Innovation & Energy Efficiency business segment.
The company has been capitalizing on the steady rise in oil prices over the past year as the global economy bounced back from the pandemic-fueled recession. Gas prices in Asia and Europe rose 85% sequentially in its fiscal third quarter, substantially boosting TTE’s profit margins. For the third quarter, ended September 30, 2021, TTE’s adjusted EBITDA increased 110.1% year-over-year to $11.18 billion. Its adjusted net income improved 462.4% from the same period last year to $4.77 billion. And its adjusted EPS stood at $1.76, up 506.9% from the prior-year quarter.
As a world leader in LNG production, TTE has an impressive growth history. The company’s revenues have increased at a 5.6% CAGR over the past five years. Its total assets and levered free cash flow have risen at CAGRs of 3.8% and 36%, respectively, over the past three years. Furthermore, TTE is taking active steps to reduce its carbon footprint amid rising concerns surrounding climate change and increasing demand for sustainable green energy.
On November 19, TTE partnered with the Government of Suriname to support the latter’s national strategy to reduce greenhouse emissions by preserving the Amazon rainforest. Also in that month, the company partnered with Australian carbon developers, ArgiProve and Corporate Carbon, to develop natural below-ground carbon sinks. These partnerships are aligned with TTE’s plans to eradicate its Scope 1 & 2 emissions.
A $2.15 consensus EPS estimate for its fiscal fourth quarter (ending December 2021) indicates a 367.4% improvement year-over-year. Analysts expect TTE’s revenues to improve 45.6% from the same period last year to $55.24 billion in the current quarter. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three out of trailing four quarters.
Shares of TTE have gained 13.6% in price year-to-date to close yesterday’s trading session at $47.60.
TTE’s POWR Ratings reflect this promising outlook. The stock has an overall POWR Rating of B, which equates to Buy in our proprietary POWR Ratings system. It also has a B Growth grade. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Nucor Corporation (NUE)
NUE produces direct reduced iron and steel products through three segments–Steel Mills; Steel Products; and Raw Materials. The Charlotte, N.C., company’s customer base includes steel service centers, fabricators, and manufacturers across the United States, Canada, and Mexico.
As manufacturing and production activity picked up globally, NUE witnessed a sharp uptick in its profit margins in the last quarter. Its net sales increased 109% year-over-year to $10.31 billion in its fiscal third quarter, ended October 3, 2021. This can be attributed to an 86% rise in average sales price per ton and 16% rise in total steel mill shipments. Its net earnings soared 1001.3% from the same period last year to a record $2.13 billion, while its EPS improved 1055.6% from its year-ago value to a record $7.28.
NUE’s revenues have risen at a 14.8% CAGR over the past five years, while its net income has improved at 33.4% CAGR over the past three years. And the company’s total assets have increased at a rate of 11.6% per annum over the past three years.
NUE has been expanding its production capacity to capitalize on the booming infrastructure industry, which is bolstering the demand for steel. Last week, the company announced that it is currently developing a blast and prime line at its greenfield steel plate in Kentucky with an annual capacity of 120,000 tons. Earlier in October, NUE acquired an existing state-of-the-art coil processing facility in Indiana, which should allow it to expand its offerings to the automotive market.
The Street expects NUE’s revenues to be $10.44 billion in its fiscal fourth quarter (ending December 2021), indicating a 98.5% rise year-over-year. The company’s EPS is expected to improve 480.6% from the prior-year quarter to $7.49 in the current quarter. In addition, NUE has surpassed the consensus EPS estimates in three of the trailing four quarters.
NUE has gained 125% in price year-to-date and 17% over the past month.
NUE has an A grade for Growth and Momentum, and a B for Quality. In addition, it is ranked #27 out of 34 stocks in the A-rated Steel industry.
In addition to the grades I have highlighted above, one can view NUE ratings for Sentiment, Stability, and Value here.
Ulta Beauty, Inc. (ULTA)
ULTA is a beauty products retailer with a pipeline of around 20,000 products comprising cosmetics, fragrances, skin and hair care, and salon offerings. The Bolingbrook, Ill.-based company’s distribution chain includes retail stores across all 50 states and online platforms.
ULTA has been gaining prominence in the beauty and skincare industry, as evidenced by its steady growth over the past couple of years. The company’s revenues have increased at a 6.7% CAGR over the past three years, while its levered free cash flow rose at a 31.7% CAGR over this period. In addition, the company expects its total net sales to rise at a 5%-7% CAGR over the next two years. And ULTA plans to open 50 new retail stores per year from 2022 – 2024.
ULTA’s net sales improved 60.2% year-over-year to $1.97 billion in its fiscal second quarter ended July 31. Its gross profit stood at $798 million, reflecting a 139.8% rise from its year-ago value. Its EPS rose 31.6% from the same period last year to $4.56.
Analysts expect ULTA’s revenue and EPS to rise 20.9% and 49.5%, respectively, year-over-year to $1.88 billion and $2.45 in the about-to-reported quarter (ended October 2021).
Shares of ULTA have gained 43.4% in price year-to-date and 10.9% over the past month.
It is no surprise that ULTA has an overall B rating, which equates to Buy in our POWR Ratings system. Also, the stock has a Growth grade of B, and a Quality grade of A. Among the 44 stocks in the B-rated Specialty Retailers industry, ULTA is ranked #16.
In total, we rate ULTA on eight distinct levels. View additional ULTA ratings for Sentiment, Momentum, Value, and Stability here.
Steel Dynamics, Inc. (STLD)
STLD manufactures and recycles steel and metal products for the construction, automotive, equipment, and transportation industries. It operates through three segments–Steel Operations; Metals Recycling Operations; and Steel Fabrication Operations. The Fort Wayne, Ind.-based company has an ISS Governance QualityScore of 2, indicating relatively low corporate governance risk.
STLD has been named the 2021 Steel Producer of the year by Fastmarkets Global Awards for Steel Excellence. In addition, STLD was the only steel producer to be included in the 100 Best ESG companies of 2021 list published by Investor’s Business Daily.
STLD’s revenue and net income grew at CAGRs of 11.7% and 21.4%, respectively, over the past three years. And the company’s total assets rose at a 13.9% CAGR over this period.
STLD’s profit margins improved substantially in its last reported quarter owing to the rising demand for steel products globally. The company’s gross profit increased 446.6% year-over-year to $1.60 billion in its fiscal third quarter, ended September 30, 2021. Its net income rose 859.1% from the year-ago value to $1 billion, while its EPS improved 931.9% from the prior-year quarter to $4.85.
STLD is currently in the process of acquiring a minority interest in metal solutions and distribution supply-chain management company New Process Steel, L.P. This investment is expected to create new opportunities for value-added manufacturing growth for STLD.
The Street expects STLD’s revenues to come in at $5.36 billion in its fiscal fourth-quarter, ending December 2021, indicating a 106% improvement year-over-year. The $5.74 consensus EPS estimate for the current quarter reflects a 491.8% rise from the same period last year. Furthermore, ULTA has an impressive earnings surprise history; it beat the consensus EPS estimates in three of the trailing four quarters.
Shares of STLD have gained 81.8% in price year-to-date to close yesterday’s trading session at $67.03.
STLD has an overall B rating, which translates to Buy in our proprietary rating system. Furthermore, the stock has an A grade for Growth and Momentum, and a B for Quality. It is ranked #21 in the Steel industry.
Beyond what we have stated above, one can view STLD ratings for Sentiment, Stability, and Value here.
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TTE shares were trading at $48.41 per share on Tuesday afternoon, up $0.81 (+1.70%). Year-to-date, TTE has gained 19.70%, versus a 25.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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