BOSTON (TheStreet Ratings) -- The U.S. economy, while making strides since the Great Recession, slowed in the first quarter, and the job market and housing industry have worsened. Higher oil and food prices, Europe's debt woes and the earthquake in Japan piled on to the misery.
Still, I wanted to find stocks that have been bucking the trend. Specifically, companies that are increasing profits at a fast rate. I screened top-rated stocks (as ranked by TheStreet Ratings' quantitative equity model) and looked for companies with growth in revenue, earnings and cash flow of at least 20% in the most recent quarter and with estimated growth of at least 20% in earnings per share over the next year.
I also wanted companies with so-called high-quality earnings, meaning cash flow is greater than net income. If net income is greater than cash flow, it could be a sign that the company is manipulating profits or using aggressive accounting methods to make earnings look better than they may be.
Here are the highest-rated stocks, according to the aforementioned metrics:
makes ceramic proppants, which are used in the hydraulic fracturing of natural gas and oil wells. Once a driller has "fractured" the sediment, it needs something to keep it "propped" for gases or liquids to flow more efficiently to the wellhead. Ceramic proppants offer an alternative to popular sand-based materials and have shown to greatly improve the production of oil and gas.
Carbo Ceramics has been a big benefactor of exploration in the Eagle Ford and the Haynesville shale territories, setting records for proppant-sales volume in the recent quarter, with earnings and operating cash flow up 44% and 55%, respectively. Management is aggressively building for the future, with two projects that should increase proppant capacity to over 2.1 billion pounds per year, an increase of 35% over current production.
Yet, after the stock has more than doubled in the past year, some investors are concerned Carbo Ceramics is overvalued. The stock trades at a premium to the industry (current price-to-earnings ratio of 36 and forward P/E of 23), but, given growth prospects and leadership position in a booming industry, I still think the stock offers a great secular growth opportunity. TheStreet Ratings has a "buy" with a $197 price target (34% potential upside) on shares of Carbo Ceramics.
sells drugs for the treatment of central-nervous-system and inflammatory disorders. The company lifted profit 70% in the first quarter and averaged 25% annualized revenue growth over three years.
In its most recent earnings release, Questcor reported impressive sales for its Acthar drug (up 120% over last year), used for patients suffering from multiple sclerosis. According to management, demand is being driven by the increasing productivity of an expanded sales force.
TheStreet Ratings has a $30 price target on shares of Questcor, offering the potential for 32% upside. Our model scores the stock highest for growth (EPS growth of 44% over last year), performance (shares are up 123% over last year), and efficiency (current return on invested capital of 31%). The company is also well-funded, with no debt and 120 million in cash.
, the Canadian maker of high-end yoga clothing, has been on an impressive run over the past year, with the shares doubling. Consumers (mostly women) have been willing to pay up for the premium apparel, with growth that most companies can only dream of. Earnings have increased at an average annualized rate of over 60% (over three years), with earnings up over 100% in the past year.
But can that pace of growth continue? Many are concerned the stock is priced for perfection, and with shares trading at 51 times trailing earnings, they might be right. Analysts are calling for 25% growth for next year (EPS of 2.54), leading to a forward P/E of 34 for the shares.
This equates to a PEG ratio (price to earnings growth) of 1.36, which is no bargain by any means. If new-store expansion is successful (30 new stores are planned in 2011) and management can continue to grow in excess of 30%, the premium could be warranted.
Retail Opportunity Investments Corp.
is a REIT that acquires and manages commercial retail properties, mainly on the West Coast, with a large concentration of owned properties in California. Retail Opportunity Investments had net income growth of 169% over the past year, due to strong leasing demand.
The company is headed by Stuart Tanz, who has had success in the past as the CEO of Pan Pacific, which sold out to Kimco Realty for $4.1 billion. Tanz has skin in the game, having bought a lot of stock. In 2011, the company has been active in acquiring shopping centers (it should close on nearly $350 million worth of property during the year), mostly in the California region, at what management considers to be "once-in-a-lifetime opportunities".
TheStreet Ratings model has a $12.40 price target on the shares, which represents the potential for 16% upside from the current price. The stock currently pays a 3.4% dividend yield yet, given the company's guidance for FFO (funds from operations), the dividend will likely be increased over the next several quarters.
Red Robin Gourmet Burgers
is in the midst of a strong recovery, with the stock up 86% over the past year. In the first quarter, the casual-dining burger chain beat quarterly EPS estimates by $0.34, sending the shares up over 20%. The strong earnings were fueled by success from a prominent television campaign.
According to Bank of America-Merrill Lynch research, the shares have the "potential for very substantial near-term EPS growth, from a combination of sales-driving initiatives such as a new loyalty program and better-timed ad spend as well as cost-savings plans."
TheStreet Ratings' model recently upgraded Red Robin to "buy" from "hold" with a $42 price target, representing 20% upside from Thursday's closing price. Our model upgraded the shares, due to the 75% EPS improvement in the most recent quarter.
At a P/E of 19 times 2012 earnings, the stock is trading at a slight premium to the rest of the casual-dining group. It's a premium that's warranted, according to Bank of America, "given that Red Robin's turnaround is just starting and has potential to drive EPS substantially higher."
Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser. Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.