While the economic rebound has helped propel the market over the last year, there’s no question, continued broad-based earnings gains have kept the party going. According to Factset data through November 19th, the third quarter blended earnings growth rate for the S&P 500 is 39.6%, which would mark the third-highest year-over-year rate since 2010.
This followed the second quarter’s 90.9% growth rate, the highest ever, and the first quarter’s 50.3% growth rate. Growth is expected to continue, albeit at lower rates. This is because much of this year’s growth is a reflection of how growth fell in the previous year due to the unique circumstances of the pandemic.
However, we have entered a new economy where market leaders will be determined by new demand, especially from companies that prosper in a growing economy. So, if investors want to continue finding companies with robust growth potential, they must look at companies with a high forecasted five-year growth rate. Westlake Chemical Corporation (WLK), ArcelorMittal (MT), and Sanderson Farms, Inc. (SAFM) are three that fit the bill.
Westlake Chemical Corporation (WLK)
WLK is a vertically integrated international producer and supplier of petrochemicals, polymers, and building products. The firm’s portfolio of products includes ethylene, polyethylene, styrene, vinyl intermediates, PVC, PVC Pipe, PVC windows, fence, and decking components. Its products are used for flexible and rigid packaging, automotive products, coatings, water treatment, refrigerants, and more.
In the most recent quarter, revenue soared 61% year over year due to high building and construction materials business demand. Increased sales prices and margins for many key products also contributed to growth. The company is currently seeing beneficial demand trends for polyethylene and polyvinyl chloride resin, which is expected to continue in consumer product packaging.
WLK 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 B as earnings have soared an average of 29.6% per year over the past five years. Analysts expect earnings to jump 548.5% this year and an average of 63.4% per year over the next five years.
The company also has a Value grade of B, which isn’t surprising, with a trailing P/E of 8.65 and a forward P/E of 9.72. We also provide Momentum, Stability, Sentiment, and Quality grades for WLK, which you can find here. WLK is ranked #7 in the A-rated Chemicals industry. For more top stocks in this industry, click here.
Note that WLK is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
MT is a leading global steel and mining company. It has a presence in more than 60 countries, but most revenue is generated in Brazil. Its products are primarily sold to customers in the automotive, general, and packaging sectors. The company also produces long sections, wire rods, rebar, billets, blooms and wire drawing, and tubular products.
MT’s sales rose 52% year over year in the third quarter, driven by a massive rise in average steel selling prices and higher iron ore prices. Steel prices and spreads are near record highs due to low inventory and tight supply-demand balances. The company has also been focused on reducing costs. MT is implementing a $1 billion cost-reduction plan to support its bottom line. The expansion of its steel-making capacity also bodes well.
MT has an overall grade of A and a Strong Buy rating in our POWR Ratings system. It has a Growth Grade of B as earnings are forecasted to surge 1,900% year over year. Over the next five years, earnings are expected to jump an average of 272.2% per year. MT also has a Quality Grade of A due to strong fundamentals.
As of the end of the third quarter, MT’s $4.4 billion cash balance is considerably higher than its short-term debt of $1.8 billion. For the rest of MT’s grades (Value, Momentum, Stability, and Sentiment), click here. MT is ranked #4 in the A-rated Steel industry. For more top stocks in this highly rated industry, make sure to visit this link.
Sanderson Farms, Inc. (SAFM)
SAFM is a dressed-chicken processor in the United States, producing and selling a variety of fresh, frozen, and value-added chicken products to grocers, foodservice operators, and distributors. The company’s product portfolio consists of tray packs and large birds, catering to grocery and food service customers.
The company is benefiting from strong execution across live production, sales, and processing. SAFM is especially gaining in higher demand and higher prices for products sold to foodservice customers. It is also seeing strong demand for products sold to retail grocery store customers. Due to this performance, management continues to invest in boosting offerings and product processing capacity.
SAFM 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 have jumped an average of 70.4% per year over the past three years. Earnings are expected to rise 455.2% year over year in the current quarter and 885.7% in the next quarter. Over the next five years, EPS are forecasted to rise 112.7% per year.
The company also has a Quality Grade of A due to a rock-solid balance sheet, driven by a current ratio of 2.9 and a debt-to-equity ratio of 0. To access all of SAFM’s grades, including Value, Momentum, Stability, and Sentiment, click here. SAFM is ranked #4 in the Food Makers industry. For more top-ranked stocks in this industry, visit this link.
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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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WLK shares were unchanged in after-hours trading Monday. Year-to-date, WLK has gained 22.06%, versus a 25.48% 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. 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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