These 5 Stocks Show Combination Of Value, Growth by John Dorfman, Dorfman Value Investments
Looks or money? Brains or beauty? Value or growth?
The world is full of false dichotomies.
Assets in private equity and venture capital strategies have seen significant growth in recent years. In comparison, assets in the hedge fund industry have experienced slowing growth rates. Q2 2021 hedge fund letters, conferences and more Over the six years to the end of 2020, hedge fund assets increased at a compound annual growth rate Read More
In the stock market, investors seek companies with good earnings growth (the growth school) and/or companies with bargain stock prices (the value school).
It is sometimes possible to find both in one stock. Right now I think D.R. Horton Inc., Skechers USA Inc., Taro Pharmaceutical Industries Ltd., Douglas Dynamics Inc. and United Therapeutics Inc. qualify.
Each sells for 15 times earnings or less, putting them in the value camp in my book. They also show average growth of 12 percent or more in both sales and earnings for the past five years, which puts them in the growth category as well.
Value Stocks vs Growth Stocks
Beginning in 2001, I’ve written 10 columns on the subject of stocks that display both growth and value characteristics. The average one-year total return (including dividends) on my recommendations has been 19.27 percent, compared with 9.60 percent for the Standard & Poor’s 500 Index.
Keep in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And past performance doesn’t guarantee future results.
Last year’s list was the only one of the 10 that has failed to show a profit.
After a spill, they say it’s good to get back on the horse. Here are five new value-plus-growth selections that I believe will be rewarding.
I’ve been sweet on homebuilders for more than a year now. Today I’ll focus on D.R. Horton (DHI), which has grown its sales at a 19 percent clip in the past five years and earnings at a faster pace.
In contrast to Toll Brothers, which I recommended recently and which is known for high-end homes, Horton, based in Fort Worth, Texas, is more of a starter-home builder. In 2015, the average sale price of a new home in the United States was about $295,000; Horton’s was roughly $10,000 less.
Skechers USA, based in Manhattan Beach, Calif., makes fashion footwear (especially sneakers) and other clothing. At about $24, its stock fetches half the price it did a year ago.
A quarterly earnings disappointment and some insider selling have hurt the stock. Yet there’s a case to be made here. Skechers has been profitable in 13 of the past 15 years. Recently it has been earning about 19 percent on stockholders’ equity, which is praiseworthy in itself and relative to the company’s past history.
At 14 times recent earnings and a little more than 11 times estimated earnings, I find the stock attractive.
Taro Pharmaceutical Industries
Based in Haifa Bay, Israel, Taro Pharmaceutical Industries (TARO) is a midsized drug company. Its products are used in dermatological, cardiovascular, anti-inflammatory and neuropsychiatric treatments. Its sales have grown at a 19 percent clip and earnings faster than that.
The company is debt-free, which reduces risk and gives it strategic flexibility. It has been profitable in 14 of the past 15 years, with a sterling return on equity last fiscal year of more than 32 percent.
An old stock-market adage advises buying straw hats in January. So how about buying a maker of snowplows after the warmest winter on record?
I’m thinking of Douglas Dynamics (PLOW), based in Milwaukee. At about $27 a share, it currently trades for 12 times earnings, versus a 10-year historical average of 19.
I have owned United Therapeutics (UTHR) twice for clients but do not own it currently. However, the Silver Spring, Md.-based company still intrigues me.
This biotech company’s niche is the treatment of pulmonary arterial hypertension. It is also working on cancer therapy. Over the past 10 years the stock has sold for an average of 24 times earnings.
Today it sells for only seven times recent earnings and nine times analysts’ estimates for this year. Like Taro, this company is debt-free.