2 Stocks for Big Earnings Growth
Earnings are the lifeblood of the stock market. And earnings growth is the holy grail for most investors. Which is why tech stocks are so popular – they have the earnings growth. And these days, with the so-called Magnificent Seven dominating the S&P 500 and the NASDAQ, well, you’ll definitely hear that’s unhealthy for the overall market so be so dependent on a handful of megatech stocks…
In my 25 years in this biz, I’ve seen several tech cycles. And when a company is riding a tech cycle – has a dominant position – it’s something to behold. Good stories get better, as I like to say, and that’s exactly what happens to the companies at the forefront of any tech cycle.
Investors made a crap-ton of money when Cisco (NASDAQ: CSCO) was dominant during the internet bubble years. Nokia (NYSE: NOK) had a stranglehold on the cell phone world for a decade. Intel (NASDAQ: INTC) was synonymous with PCs and laptops alike…
I’m sure you see where this is going. It seems inevitable that big tech companies became one-trick ponies. They get better and more focused on the one thing they do well, fail to see the early signs that the current tech cycle they’re riding is changing, and crash and burn when they miss the start of the next tech cycle.
Nokia flat out missed the start of the smartphone cycle and it never managed to catch up. By the time Nokia got around to selling its handset division, it was such a non-event I don’t even remember who they sold it to.
Cisco and Microsoft are more interesting stories – because each knew they needed to innovate or die. Cisco tried for years to branch out and catch a new cycle. The company made a ton of acquisitions – throw enough stuff at the wall and something’s bound to stick, right? But none of them ever really worked for Cisco. The stock was a dog for 15+ years before finally getting its footing 5 years ago. The stock still hasn’t managed to match its highs from 25 years ago…
Microsoft’s former CEO Steve Ballmer believed that the company didn’t have to innovate, exactly. He thought Microsoft could let others blaze the next tech trail and they could swoop in with their massive engineering and marketing machine and dominate. That didn’t really work either. Microsoft launched a Windows smartphone, the XBOX gaming console, the Bing! search engine but never managed to find real success as a company – Microsoft stock was flat around $35 for a decade.
All Hail Big Tech
So, if you think the concentration of market value in a handful of big tech stocks is dangerous because of the capricious nature of tech cycles, well, I can’t tell you that you’re wrong. History would suggest that it is probably inevitable that some of today’s incredible growth stocks will be tomorrow’s Nokia or even Cisco.
Between 2007 and 2017, Microsoft revenue grew 75%, from $51 billion to $89 billion. Not bad But over the last 6 years, revenue has grown 140% – to $211 billion. Epic turnaround…
Between 2010 and 2019, Apple (NASDAQ: AAPL) grew its revenue from $65 billion to $260 billion. That’s just nuts. But, then in 2022, Apple’s revenue hit $394 billion.
Google (NASDAQ: GOOG) = also nuts. $110 billion in revenue in 2017, $279 billion last year…
In 3 years, these 3 companies – Apple, Microsoft and Google – have grown revenue by $288 billion!
Companies with that kind of proven growth – and growth potential – I don’t have a problem saying that they should be the dominant companies in the stock market today. And I’d also suggest that they may not be as vulnerable to the next tech cycle – whatever it may be. Just look at how they’ve dealt with Artificial Intelligence (AI)…
AI is disruptive technology, no doubt about it. But the big tech stocks are the ones driving the AI cycle.
So anyway. I may have gotten off on a bit of a tangent here, talking about how the massive gains ini revenue that these big tech stocks have enjoyed. My point today was to talk about how nicely jumps in revenue and profits correlate to jumps in stock price. After all, we’re all here to make some money.
Now I’d like to talk about a couple companies that have some of the highest profit growth forecasts coming over the next 12 months. Because these could make you some serious loot over the next few months.
Biggest Revenue and Profit Growth
Before I start in on the two stocks with the highest profit growth estimates, lemme just I was pretty surprised when I was doing this work. I expected to find that tech or even oil would be leading the way.
But the winners are: Carnival Cruise Lines (NYSE: CCL) and Las Vegas Sands (NYSE: LVS).
Carnival Cruise Lines was devastated by COVID. No surprise there. And even though travel volumes have picked up dramatically, Carnival is still expected to lose -$0.15 a share for the full year 2023.
But next year? On average, analysts expect a profit of $0.93 a share. One analyst has a profit estimate of $1.13. Either way, that is a huge turnaround. Operating cash flow will improve from around ~$1 billion to at least $3 billion.
Now it’s true, Carnival took on a lot of debt to survive COVID around $30 billion net, considering the $4 billion it has in cash. Some will tell you that this debt makes Carnival a bad investment. Baloney.
Right now, Carnival Cruise Lines is a $15 stock. It trades at a discount to next year’s revenue. From 2015 to 2019, it was at least a $40 stock, and traded as high as $70. I can’t tell you it’s going back to the range over the next year, but if earnings grow like analysts expect, somewhere around $30 a share is likely.
Now, Las Vegas Sands. I’ll tell you right out – the earnings numbers aren’t as good as Carnival. The Sands is expected to earn $1.94 this year. And in 2024, it’s expected to earn $2.97 a share. That’s 53% earnings growth – right about the same earnings growth that analysts expect from Nvidia (NASDAQ: NVDA).
Las Vegas Sands currently trades just below $50, and its 52-week low is down in the low-$30s. It’s not exactly cheap, with a forward P/E of 15. Still, I bet it’s higher than $50 by the time we ring in 2024.
That’s it for me today, take care and I’ll talk to you on Friday.
Briton Ryle
Chief Investment Strategist
Pro Trader Today
brit.ryle@protradertoday.com
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