Daily Archives: March 11, 2019

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7 Growth Stocks Racing to All-Time Highs

Source: Shutterstock

After a brutal late 2018 selloff, financial markets have been on a healthy and stable recovery path thus far in 2019. Through the first three months of the year, the S&P 500 is up 12%, marking one of its best starts to a calendar year in recent memory.

As broader financial markets have stabilized, growth stocks have come back into favor. Indeed, one could say that they’ve done much more than come back into favor. Many of them have rushed to fresh all-time highs in 2019, and that’s after big corrections in late 2018. That means that a handful of these growth stocks have staged huge rallies over the past three months.

Which stocks fit into this category? And can these big rallies last?

These are questions investors should be asking as we head into what projects to be a more volatile time for financial markets throughout the balance of 2019. As such, let’s take a look at seven growth stocks which have raced to all-time highs in early 2019, and analyze whether or not their big rallies can continue.

 iRobot (IRBT)

Why It’s at All-Time Highs: Shares of consumer robotics giant iRobot (NASDAQ:IRBT)have run up to all-time highs prices on the back of a strong double-beat-and-raise fourth-quarter earnings report that emphasized a few positive trends, including continued robust robotic vacuum market expansion, strong margin growth and a mitigated tariff impact.

Where It’s Going Next: The long-term IRBT growth narrative is positive. This company is morphing into a consumer robotics leader with minimal competition, and as such, will be a big revenue and profit grower for a lot longer as the consumer robotics space expands. Such big revenue and profit growth will keep IRBT stock on a long-term winning trajectory. But, in the near term, the valuation seems stretched at nearly 40x forward earnings. This stock needs to trade sideways for the foreseeable future to allow the fundamentals to catch up.

Shopify (SHOP)

Why It’s At All-Time Highs: Shares of e-commerce solutions provider Shopify (NYSE:SHOP) have notched new all-time highs thanks to renewed macroeconomic confidence and a strong Q4 earnings report in which growth hardly slowed and margins continued to move higher.

Where It’s Going Next: In the big picture, Shopify stock is powered by a secular growth narrative that goes something like this: the world is becoming increasingly decentralized thanks to technology democratizing creation and distribution processes. Shopify is enabling and empower this decentralization in the retail world. As this decentralization trend continues to play out over the next several years, Shopify’s merchant base will grow by leaps and bounds. Revenues will roar higher. Profits will, too. So will SHOP stock. As such, the long-term narrative here is very bullish — bullish enough to make this a long-term buy-and-hold stock.

Cronos (CRON)

Why It’s At All-Time Highs: Shares of Canadian cannabis company Cronos (NASDAQ:CRON) have more than doubled in 2019 and run to fresh all-time highs on the back of a multi-billion dollar investment from tobacco giant Altria (NYSE:MO). Investors have interpreted this investment as a major vote of confidence from a well respected global tobacco giant, at a time when global cannabis market fundamentals are improving. Consequently, they have bid up CRON stock to new highs.

Where It’s Going Next: The cannabis market projects to be really, really big one day. With a multi-billion dollar investment from Altria in its back pocket, Cronos has the necessary financial resources, business know-how, and distribution networks to one day turn into a major player in this global market. It’s fair to say that the stock has gone too far, too fast, and needs to cool off. This is likely what will happen. But, after that cooling off period, CRON stock will resume its uptrend, because the long-term fundamentals here of Cronos turning into a global cannabis giant are quite promising.

Wayfair (W)

Why It’s At All-Time Highs: Shares of online home retailer Wayfair (NYSE:W) have surged over the past few weeks to all-time highs thanks to two things. One, confidence in the macroeconomic environments in the U.S. and Europe has dramatically improved. Two, Wayfair’s margins finally stabilized last quarter, and that stabilization coupled with continued robust domestic and international growth served as justification for what had been several quarters of big investment. Investors rallied around those numbers, and bid up W stock to new highs.

Where It’s Going Next: Wayfair is a big growth story. This company has differentiated itself as the leader in a secular growth online home retail market, and this market is very big. Management pegs it at $600 billion in the U.S. and Europe. Revenues were under $7 billion last year, and grew by over 40% year-over-year. Thus, there is lots of runway for Wayfair to remain a big growth company for a lot longer. Having said that, the valuation is a tough pill to swallow here, especially with profit margins still very weak. As such, I wouldn’t chase this rally. But, I would buy any big dips.

The Trade Desk (TTD)

Why It’s At All-Time Highs: Programmatic advertising leader The Trade Desk (NASDAQ:TTD) has exploded to all-time highs over the past few weeks thanks to a robust double-beat-and-raise fourth quarter earnings report which underscored that this company’s growth narrative is still accelerating, and that big growth is here to stay for a lot longer.

Where It’s Going Next: The Trade Desk is a secular growth company powered by still accelerating tailwinds in automation and advertising. Over time, all $1 trillion worth of global ads will be transacted programmatically. That means that Trade Desk, which had under $3 billion in gross spend last year, has a huge opportunity in front of it to grow gross ad spend towards $100 billion-plus. If management successfully executes on that opportunity, TTD stock will head significantly higher in a long term window.

Etsy (ETSY)

Why It’s At All-Time Highs: Shares of Etsy (NASDAQ:ETSY) have surged to all-time highs over the past few weeks thanks to robust holiday numbers which were strong across the board, including robust community, sales, margin, and profit growth. Investors cheered those results, and bid up ETSY stock to fresh highs.

Where It’s Going Next: Etsy is a big growth company with strong growth drivers in e-commerce. But, there’s lots of competition here, from Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY), and others. To be sure, Etsy has held off that competition, but that’s because Etsy dominates a niche of the market, meaning that growth won’t remain big forever. Eventually, it will tap out, and so will margins. That may happen sooner than most expect, and at over 60x forward earnings, a slowdown could be catastrophic for ETSY stock.

Chegg (CHGG)

Why It’s At All-Time Highs: Digital education platform Chegg (NASDAQ:CHGG) has roared to all-time highs on the back of a strong Q4 earnings report which included robust subscriber, revenue, and profit growth, as well as a healthy first quarter and fiscal 2019 guide.

Where It’s Going Next: CHGG stock will head higher from here. Why? Because the company is the unchallenged leader in the digital education market, and that market is far bigger than what the company is currently penetrating. At scale, Chegg will transform into a must-have digital education tool for all high school and college students. It is only a fraction of that today. As such, big growth is here stay for a lot longer. Such big growth is also accompanied by big margins. The combination of big growth and big margins will inevitably power CHGG stock higher in the long run.

Source: Investor Place

REITS

3 High-Yield REITs for Conservative Investors

It has been a challenging start to 2019 for real estate investment trust (REIT) investors. At the start of the year, the REIT indexes zoomed higher. The last few weeks have investors wonder if the party is already over for the year.

The financial media is placing blame in many places including trade wars, slowing growth and interest rate uncertainty. Many believe interest rates on the long end of the yield curve could rise with the growing Federal deficit. Which if true does not give confidence in REIT values. Fortunately, history shows that the belief that rising interest rates are bad for REITs value is a false assumption.

The current doldrums for the REIT sector may likely end up as a great buying opportunity for future gains.

Both Forbes and the NAREIT website note that historically, REITs have generated returns greater than the S&P 500 during periods of rising rates. How can this happen? As income investments, investors tend to lump REITs in with fixed income investments, i.e. bonds.

When interest rates go up, mathematically bond prices must fall producing negative returns for bond investors. REIT shares are ownership stakes in businesses. Rising interest rates are usually the result of economic growth.

For the REIT sector, an improving economy typically means rising commercial property values and the potential to increase rental rates. A significant portion of the REIT sector sees significantly greater benefits from economic growth than they experience from higher interest expense.

These factors are especially true in the current market. Companies have had several years to prepare for higher rates. This means that well managed REITs have locked in low interest rates with long-term fixed rate debt. These REITs should be able to improve profit margins by boosting lease rates, even as they keep interest expenses low.

There are REITs to avoid. Stay away from any companies that have variable rate borrowing costs. These will see profits squeezed by rising rates.

Avoid REITs that do not have histories of dividend growth. Part of staying ahead of rising rates is to own those REITs that can grow dividends faster than the increases in interest rates and inflation. With the recent retrenchment in REIT values, you can find shares with very attractive yields.

The next step is to ferret out companies that will grow dividends at greater than the rate of inflation. Here are three to get started with.

MGM Growth Properties LLC (NYSE: MGP) is a REIT that was spun-off by MGM Resorts International (NYSE: MGM) in April 2016. In the IPO MGP received ownership to a larger portion of the MGM owned real estate, primarily casino hotel resorts.

The properties are leased back to MGM Resorts on a long-term master net lease. Lease terms are very favorable for MGM Growth Properties. The master lease means that MGM makes a single lease payment and cannot get out of paying for individual properties. All new acquisitions from MGM are added to the master lease. The lease includes annual rent escalators and profit sharing from the portfolio resorts.

The MGP dividend has been increased five times since the IPO and is forecast to grow by 8% in 2019. As the name states, this is a growth focused REIT. They have made offers on Las Vegas properties not owned by MGM.

The stock currently yields 6.0%.

Hotels are a commercial real estate sector that benefit from economic growth and can quickly pass along higher costs as higher room rates.

Summit Hotel Properties, Inc. (NYSE: INN)recently announced very good 2018 results, with expectations of continued growth in 2019. Revenue per Available Room (RevPAR) is the metric to watch with hotel companies.

After two years of flat RevPAR, the metric took started to improve in 2018. Continued profit growth should lead to a 5% to 6% dividend increase this year. The current dividend rate is just 50% of FFO per share.

The continued positive economic outlook should allow INN to grow dividends in the high single digit range.

The stock yields 6.3%.

Kite Realty Group Trust (NYSE: KRG)neighborhood and community shopping centers in selected markets. These shopping centers are different from the malls and are integral to the function of the communities where they are located.

These properties are anchored by internet-resistant tenants like restaurants, grocers, entertainment, and specialty stores. Kite Realty has been a steady 5% per year dividend growth REIT. This will not change even if the investing public gets negative on anything that looks like a mall REIT.

In the retail sector there are great differences between different companies and the types of properties they own. Kite Realty is an undervalued, stable dividend growth REIT.

The current 8.4% yield makes KRG shares very attractive.