4 growth stocks I'm watching closely

You might be shocked, but these 4 could be huge winners

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Some readers will probably be shocked by the four stocks that I'm currently watching, but generating above market returns means considering those stocks that are ugly and unloved.

These four definitely fall into those categories, in one way or another. The first three stocks I already own but would like to add to my holdings.

Vocus Group Ltd (ASX: VOC)

The diversified telecommunications group has seen its share price fall below $3, after hitting a 52-week high of $9.40 nearly a year ago. Investors are concerned about falling revenues, profit downgrades and it's no wonder that short sellers have been targeting the company, expecting the share price to fall further. Revenues for telcos under the NBN scheme are expected to be much lower, and that is also impacting on another growth stock I'm watching – TPG Telecom Ltd (ASX: TPM). Vocus has the additional problem that it may have overextended itself with acquisitions in the past 18 months or so, and now boasts a debt load of more than $980 million.

My bull case is that Vocus can sell off some of its non-core assets, like data centres, if necessary to pay down debt and it's a potential acquisition target given its primary fibre and telecommunication assets. Like other infrastructure stocks, the owners of the pipes of internet data such as Vocus and TPG Telecom should be very profitable for many, many years, with demand for data growing relentlessly.

TPG Telecom

TPG Telecom has many of Vocus's similarities but also has the backing of one of the smartest telco operators in Australia, David Teoh – who also happens to have a significant stake in TPG Telecom. Like Vocus, TPG should do well over the next 10-20 years and even beyond that, thanks to demand for the services and products it provides to consumers and businesses.

Sirtex Medical Limited (ASX: SRX)

Sirtex Medical has been much maligned in the past 6 months, since early December 2016, when the share price plunged 36% to around $16 after a disappointing trading update. Sirtex primarily sells a liver cancer treatment, and announced that sales were growing at around 4-5% instead of the anticipated double-digit growth rates. That has been impacted by increased competition, a newer drug and other factors. Ex-CEO Gillman Wong was fired for inappropriate trading, another factor investors didn't like, and several clinical trials haven't produced the positive results Sirtex and shareholders were hoping for.

But there is hope. A new CEO has been appointed and appears to be making the right noises about turning the company around as we noted in February. The company's product is still in demand and there is plenty of market demand to grow dose sales around the world.

REA Group Limited (ASX: REA)

The owner of realestate.com.au also holds stakes in property businesses in the US and throughout Asia, so is not constrained by results from its Australian operations. The real estate sector is being disrupted by newcomers such as REA Group, which are likely to grab more and more share of the fees paid by property owners for selling their homes. Interestingly, a downturn in Australia's property markets tends to see properties listed on sites like realestate.com.au for much longer, which makes up for the fall in numbers of properties being advertised. The company also has a number of levers it can pull to drive more growth, including its Asian and US businesses.

The only factor stopping me from buying now is the price. At $65.12, it's close to its 52-week high of $66.64 set earlier this month. But the share price has traded as low as $60.53 in the past month, which would be a better level to buy in at.

Motley Fool contributor Mike King owns shares of Sirtex Medical Limited, TPG Telecom Limited, and Vocus Communications Limited. You can follow Mike on Twitter @TMFKinga The Motley Fool Australia owns shares of TPG Telecom Limited and Vocus Communications Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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