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Wednesday, December 4, 2013 - 14:30

These Are America's Fastest-Growing Blue Chips

Wednesday, December 4, 2013 - 2:30pm

As company executives sit down to establish their 2014 strategies, they're faced with a sobering prospect: The U.S. economy is likely headed for yet another year of subpar growth. It's a theme I discussed a few weeks ago and the prospects of deeper government cutbacks, as a result of the current "sequester" policy, could even lead to even more anemic growth.

Indeed, more than half of the companies in the S&P 500 are expected to boost 2014 sales by less than 5%. Still, there are nearly two-dozen firms capable of defying economic gravity. Each of these firms is expected to boost sales at least 20% in the year ahead.

To be sure, some of these companies are resorting to acquisitions to boost sales. These include:

InterContinental Exchange (NYSE: ICE), which is expected to more than double in size thanks to a merger with the NYSE.

Tenet Healthcare (NYSE: THC), which is expected to see a 46% jump in revenue thanks to a recently-completed acquisition of Vanguard Health Services.

NRG Energy's (NYSE: NRG) recent move to acquire assets from the bankrupt Edison Mission Energy will also lead to a sizable 29% spike in 2014 revenues.

Corning's (NYSE: GLW) assumption of Samsung's share in a joint partnership should give a quick boost to the top line.

McKesson's (NYSE: MCK) $8 billion proposed purchase of German drug wholesaler Celesio should boost sales more than 20%.

Actavis' (NYSE: ACT) $8 billion acquisition of drug maker Warner-Chilcott is providing a solid top-line boost.

Constellation Brands' (NYSE: STZ) June, 2013 acquisition of the U.S. arm of Mexican brewer Grupo Modelo is helping to move the sales needle.

Total Systems and Services (NYSE: TSS) summer 2013 purchase of debit-card provider NetSpend creates an industry leader in a fast-growing segment.

Notably, almost every other fast-grower in the S&P 500 isn't resorting to deal-making and instead will likely generate robust organic growth. And as you'd assume, some of that growth will come from some of the leading lights of technology.

Of these four tech firms, only Priceline.com (Nasdaq: PCLN) trades for less than 40 times projected 2014 profits, so it's hard to think of these high-growth names as being un-appreciated. Beyond these four firms, you'll find impressive growth stories playing out in energy, pharmaceuticals and housing.

Roughly a month ago, I profiled Cabot Oil & Gas (NYSE: COG), which is the fastest organically-growing company in the S&P 500. Robust levels of drilling activity -- both here in the U.S. and elsewhere--are also helping boost demand for energy service providers Noble Corp. (NYSE: NE) and Rowan Cos. (NYSE: RDC).

The best story in housing
Over the past few quarters, investor enthusiasm for housing stocks has greatly dimmed. Homebuilders have noted a slower sales environment in 2013, at least compared to the hopeful signs that were emerging when the year began. The stock chart for home builder Lennar (NYSE: LEN) is typical.

Though 2013 is shaping up to be a disappointment to housing's biggest bulls, the industry still appears poised for a solid upturn over the next few years, as unemployment continues to fall, consumer balance sheets grow stronger, and new household formation starts to rebound.

In anticipation of rising demand for housing, homebuilders are ensuring that they have acquired enough properties on which to eventually build. Lennar has been especially active. According to Morningstar, the firm "has comparatively ample land inventory on its balance sheet, much of it purchased before the large run-up in land prices. This should help the firm grow faster and at better margins than its peers over the next couple of years."

As much of that land was acquired while the real estate market was in a funk, Lennar is considered to have one of the lowest costs structures in the industry. "Lennar has probably done the best job under our coverage showing margin improvement and given the company is just closing on land now that they agreed to buy one to two years ago we expect additional margin improvement from here," note analysts at Goldman Sachs.

Despite a somewhat soft housing market, Lennar appears positioned for solid growth: Sales are on track to rise to $7.3 billion fiscal (November) 2014, from $4.1 billion in fiscal 2012. And by the middle of the decade, the housing market may truly be on a solid growth path, helping push Lennar's sales even higher.

Risks to Consider: The technology stocks noted earlier appear to hold the highest risk in this group, as they sport valuations that are even rosier than their top-line growth prospects.

Action to Take --> It's no surprise that technology, energy, pharmaceuticals and housing are home to some of the most dynamic growth models around. The fact that these firms can generate 20% sales growth in a very slow economy bodes well for subsequent years when the economy is on better footing.

P.S. Have you heard about our Top 10 Stocks for 2014? Stock #10 is making a fortune from an aging population around the world. And business is booming -- this medical company had a staggering 80 product launches in 2012 and sales of more than $20 billion. That sort of growth is why this company has raised dividends 580% since 1993. To learn more about this stock -- along with the rest of our Top 10 Stocks for 2014 -- click here.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.