Growth stocks can come in many forms, like in the case of Aristocrat Leisure Limited (ASX: ALL) and CSL Limited (ASX: CSL). Both have risen strongly in the last two years. Still it seems they will begin their next leg upwards thanks to forecast business expansion.
Healthcare is usually a defensive sector and in growing populations like North America and Asia, demand for service can rise steadily.
The leisure and gaming industry gets a boost from growing overseas economies when consumers have more disposable income.
Both stocks have price-earnings ratios in the mid-20s. That matches up reasonably with the expected growth of the companies.
— Aristocrat Leisure Limited
The electronic gaming machine manufacturer recently set a new 52-week high at $5.82. More importantly, the company is continuing its growth in earnings, with a 9.5% gain in half-year earnings per share. Over the next two years consensus forecasts put earnings growth at around 15% annually.
In the next 3 – 5 years, a number of new casinos will be developed or upgraded domestically, such as in Sydney, Brisbane and the Gold Coast. Overseas, countries like Vietnam, South Korea and Japan may revise their gambling laws and allow more integrated resorts development. Aristocrat Leisure holds the biggest market share for electronic gaming machines in Asia, so its growth prospects are attractive.
— CSL Limited
The biopharmaceutical company had solid top and bottom line growth in FY 2014. Its research and development investment was also up, which takes away from immediate net earnings, but keeps future growth strong with new products and continued research. It specialises in medical products for blood disorders, as well as viral and bacterial diseases.
Along with the great results, CSL is continuing its share buyback, perhaps buying as much as a further $950 million. That would be worth about 2.7% of its current $34.7 billion market capitalisation. Similar to Aristocrat, its earnings are forecast to grow an average 15% annually in the next two years. Long-term debt has risen strongly to $2 billion since 2011, but with full year net profit at $1.38 billion, the debt is manageable and is working to grow the company even more. Healthcare is a long-term growth engine for investors because of growing populations and a general rise in average age.
I consider CSL the stronger pick of the two for the long term. Aristocrat Leisure can be more cyclical, although it could have more room to run from the growing Asian gaming market.
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