While there are merits in being a value or income investor, ultimately the attribute that the market appears to reward above all else is growth. Certainly, stocks that have great yields, or which trade at wide discounts to the index can beat the market, but earnings growth can act as a the primary catalyst on a company's share price.
That's even more true at the present time, with the Aussie economy enduring a tough period and there being uncertainty regarding interest rates as well as commodity prices. Therefore, companies with upbeat growth potential could be worth buying and here are three of my favourite growth stocks for the long term.
Macquarie Group Ltd
Macquarie Group Ltd (ASX: MQG) has a somewhat disappointing track record of earnings growth, with its bottom line rising at an annualised rate of just 3.8% during the last five years. However, the last year has seen a sharp rise in Macquarie's profitability, with earnings soaring by 55.7% and being a major reason for the company's share price gain of 39% in the last 12 months.
Looking ahead, many investors may argue that Macquarie's valuation indicates that its shares could be due a fall, since it trades on a price to earnings (P/E) ratio of 17.5, versus 16.7 for the ASX and 15 for the wider banking sector. However, with its bottom line forecast to grow by 36% from 2014 to 2016 and Macquarie set to benefit from a strengthening US dollar, $100 per share may be within the company's reach over the medium term.
FlexiGroup Limited
Shares in leasing company, FlexiGroup Limited (ASX: FXL), have risen by 14% since the turn of the year, with a beta of 1.54 helping them to outperform a rising ASX. In fact, over the long term, FlexiGroup's high beta could be a major plus for its investors, since with the RBA looking likely to cut interest rates further, higher beta stocks could benefit from a buoyant ASX that is pushed upward by a lower interest rate.
And, with FlexiGroup forecast to grow its earnings by 19.7% between financial year 2014 and financial year 2016, its current price to book (P/B) ratio of 2.72 offers appeal. Furthermore, with a lower interest rate period seemingly ahead of us, demand for loans could increase, which could mean that FlexiGroup's earnings numbers are upgraded over the medium term.
Newcrest Mining Limited
The last five years have been challenging for Newcrest Mining Limited (ASX: NCM), with the gold mining company seeing its bottom line fall at an annualised rate of 11.4% during the period. The key reason for this was a weak gold price and subsequent asset write-downs, but having cut costs and become more efficient, Newcrest appears to be in a great position to take advantage of a firmer gold price moving forward.
Although, Newcrest trades at a premium to the index and to its own sector, with it having a P/E ratio of 23.1, its bottom line is expected to rise by 76% from financial year 2014 to financial year 2016. Furthermore, a beta of 0.84 indicates that its shares could offer a less volatile shareholder experience in the short run than many investors currently realise.
Of course, finding the best stocks for the long term is a tough ask – especially when work and other commitments limit the amount of time you can spend trawling through the index for them.
