The stocks below may not be followed in Cabot Growth Investor on a regular basis. They’re intended to present you with ideas for additional investment beyond the Model Portfolio. For our current ratings on these stocks, see Updates on Other Stocks of Interest on the subscriber website or email mike@cabot.net.
Five Below (FIVE 41) — With its business plan of offering a store-full of discount merchandise—accessories, snacks, socks, sunglasses, T-shirts, sports stuff, tech stuff, etc.—aimed at teen customers, and all of it selling at $5 or below, Five Below has hit on a great concept. The company’s string of stores is approaching 450, and each store pays for itself within a year. Management estimates that there’s room for more than 2,000 stores in the U.S. and that revenue and earnings should grow by 20% per year all the way to 2020. FIVE has been rallying strongly since December, recovering from an early February correction within a week and reversing to finish 6.8% higher on big volume following an estimate-beating Q4 earnings report on March 23. The stock is still a bit thin (it averages just under $50 million per day), but we love the dollar-store defensiveness combined with the huge growth potential.
Nvidia (NVDA 36) — Nvidia is a chip company that specializes in the graphic processing units that put the stunning visuals into video games. We had the stock on our watch list for a while, but took it off because of weak revenue estimates. But we’re rethinking that decision, as the company is at the center of many key trends, including self-driving cars and graphics chips for 3D goggles, which might leave those estimates in the dust. The company will be returning $1 billion to shareholders this year, including last week’s monster $500 million stock buyback. NVDA gapped up on monster volume on February 18 and after a two-week pause, has surged to near its all-time highs from 2007! Hold on if you own some; if not, you can consider buying on dips of a point or two.
Sprouts Farmers Market (SFM 29) — Sprouts Farmers Market combines a couple of strengths; it’s a cookie-cutter story, which means that growth comes from the constant build-out of additional locations, and it’s an organic food story, which helps a company to command higher prices for produce and other groceries. The company has 217 locations now, and is looking to increase its store count by 14% a year with a view to 1,200 eventually, and targets earnings growth between 15% and 20% a year. The relatively young stock (IPO was in August 2013) went from over 40 in its first week to as low as 16 during the August 2015 washout, but has been strengthening well since then. It’s trading up near 30, and is likely to be choppy. The stock isn’t cheap, but in the long run we think it’s a winner.
Zillow Group (Z 23) — Zillow Group runs an online real estate information site that gives buyers a place to shop and compare and brings offers from all kinds of associated businesses—real estate agents, mortgage brokers, etc., who pay to advertise on Zillow.com—for their services. The company is small, but growing fast; revenue was up 98% in 2015 following a takeover of Trulia, a major rival. Earnings have lagged, but after an anticipated small profit this year, EPS is forecast to explode higher in 2017. The real estate market in the U.S. has been strengthening, but still has a long way to go to get back to its pre-Great Recession levels. Z has had a hard time of it, with a split of shares into non-voting C shares (trading under the ZG symbol) not helping a bit. The company’s Q4 earnings report featured an 83% bump in revenue, and when the company begins to make money, the sky’s the limit.