Growth
investors focus on stocks that are seeing above-average financial growth, as
this feature helps these securities garner the market's attention and deliver
solid returns. However, it isn't easy to find a great growth stock.
By
their very nature, these stocks carry above-average risk and volatility.
Moreover, if a company's growth story is over or nearing its end, betting on it
could lead to significant loss.
However,
it's pretty easy to find cutting-edge growth stocks with the help of the Zacks
Growth Style Score (part of the Zacks Style Scores system), which looks beyond
the traditional growth attributes to analyze a company's real growth prospects.
Centene
(CNC) is one such stock that our proprietary system currently recommends. The
company not only has a favorable Growth Score, but also carries a top Zacks
Rank.
Research
shows that stocks carrying the best growth features consistently beat the
market. And for stocks that have a combination of a Growth Score of A or B and
a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even better.
While
there are numerous reasons why the stock of this healthcare company is a great
growth pick right now, we have highlighted three of the most important factors
below:
Earnings
Growth
Earnings
growth is arguably the most important factor, as stocks exhibiting
exceptionally surging profit levels tend to attract the attention of most
investors. And for growth investors, double-digit earnings growth is definitely
preferable, and often an indication of strong prospects (and stock price gains)
for the company under consideration.
While
the historical EPS growth rate for Centene is 33.7%, investors should actually
focus on the projected growth. The company's EPS is expected to grow 24.9% this
year, crushing the industry average, which calls for EPS growth of 21.8%.
Cash
Flow Growth
While
cash is the lifeblood of any business, higher-than-average cash flow growth is
more important and beneficial for growth-oriented companies than for mature companies.
That's because, growth in cash flow enables these companies to expand their
businesses without depending on expensive outside funds.
Right
now, year-over-year cash flow growth for Centene is 52.5%, which is higher than
many of its peers. In fact, the rate compares to the industry average of 18.1%.
While investors should actually
consider the current cash flow growth, it's worth taking a look at the
historical rate too for putting the current reading into proper perspective.
The company's annualized cash flow growth rate has been 52.3% over the past 3-5
years versus the industry average of 14.4%.
Promising
Earnings Estimate Revisions
Beyond
the metrics outlined above, investors should consider the trend in earnings
estimate revisions. A positive trend is a plus here. Empirical research shows
that there is a strong correlation between trends in earnings estimate
revisions and near-term stock price movements.
The
current-year earnings estimates for Centene have been revising upward. The
Zacks Consensus Estimate for the current year has surged 0.1% over the past
month.
Bottom
Line
While
the overall earnings estimate revisions have made Centene a Zacks Rank #2
stock, it has earned itself a Growth Score of A based on a number of factors,
including the ones discussed above.
You
can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
This
combination indicates that Centene is a potential outperformer and a solid
choice for growth investors.
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