• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

Discovering True Growth Gems

The value of these companies has increased in tough times and should improve more in a better economy.
By TIM MELVIN Jan 04, 2012 | 01:00 PM EST
Stocks quotes in this article: BBT, HZO

One of my experiments over the years has been to search for companies that I have dubbed true growth stocks. These are companies that have grown sales and earnings better than 15% over the last decade. I further cull the herd by refining the search to include only those companies where management has successfully reinvested profits in the company, and the net worth of the enterprise has also grown by at least 15% over that time period.

This narrows the focus to just those companies whose management has done a great job of growing the business and not wasting earnings on bad acquisitions, poor products or overpriced share buybacks. In keeping with the Jacobian tradition (invert, always invert) of always looking at the other side, I have searched for management teams that have been able to grow the company in a decade when sales and profit growth was difficult to achieve.

I set up a new screen to look for companies that have not been able to increase sales or earnings in the past decade. I then filtered the list to include only those companies wherein the net worth of the company grew over that time period. Although it is merely a starting point, this gives us a list of companies where management has been able to manage cash flows, cost cutting and other tools to increase the value of the company. It strikes me as a way to find some potential gems that could be blockbuster stocks when their industry and economic conditions turn more positive.

As you might expect, financials lead the list. As a result of the credit crisis most banks have seen sales and revenues drop off a cliff over the past few years, wiping out the previous five years' worth of strong gains. Leading the list is a bank that I have always said had the most reason to be upset by the bailouts. Had the leading banks been allowed to fail back in 2008, BB&T (BBT) would have been one of the major regionals to become a major money center, in my opinion.

While BBT's sales and profits are well below the levels of 10 years ago, tangible book value is some 25% higher than it was in 2002. Acquisitions have increased the bank's footprint and asset base over the decade, and the bank has purchased failed and distressed banks at bargain prices in the past few years. As the economy and the banking sector improve, BBT could easily post double-digit growth rates over the next decade.

One of the more intriguing stocks on the list is MarineMax (HZO). The company is the largest retailer of boats and yachts in the U.S., and its sales and earnings have suffered along with the economy. This company fits into my "addictive lifestyle" classification of stocks since most enthusiasts consider boating not an addiction rather than a hobby. They might delay their purchase of a new boat, but they will never give up the plan to buy it. When the economy is back on track, boats will get bought. Pent-up demand for MarineMax's line-up of boats will explode at some point in the next few years, and this stock should be a top performer, rising to many multiples of the current quote.

Many of the company's competitors have disappeared in this prolonged period of economic weakness. So, even as its revenues have declined, MarineMax has seen its market share increase during the past few years. Management has been able to increase book value by roughly 25% during the past decade in a very weak sales environment and has the company poised for success when demand returns. As a bonus, the stock trades at about 80% of tangible book value right and is cheap enough to start accumulating. In better times, the shares routinely fetched between 2x and 3x tangible book value, and I think they will do so again in the future.

At first glance, this screen seems like a decent way to identify companies with strong management that have negotiated through tough industry and economic conditions. Like all screens, it is a starting point, but, one really needs to do the homework with these stocks even more than with traditional value screens. There are enough interesting and promising names on this list, so I am adding this to my arsenal of screens and will run it a few times annually.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Melvin held no positions in any securities mentioned.

TAGS: Investing | U.S. Equity | Stocks

More from Stocks

Rotation Is No Reason to Turn Away from the Markets

James "Rev Shark" DePorre
Jan 21, 2021 4:45 PM EST

Bears may fuss over the routine consolidation combined with rotational action, but here's how I look at the moves.

Jim Cramer: Housing Is Our Bridge

Jim Cramer
Jan 21, 2021 3:59 PM EST

Do not fear the housing sales boom -- this is good news and I'll tell you why.

Cord-Cutting FuboTV and Advertising Platform PubMatic Are Not Buys Here

Bruce Kamich
Jan 21, 2021 2:59 PM EST

Our look at the stocks of both FUBO and PUBM.

Hyliion Should Keep Truckin'

Timothy Collins
Jan 21, 2021 2:49 PM EST

I see a good trade down the road in this commercial fleet alternative-power truck name.

Jim Cramer: You Just Won Powerball, Now What?

Jim Cramer
Jan 21, 2021 2:24 PM EST

Remember, you only need to get rich once.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:16 AM EST CHRIS VERSACE

    Worst Stocks to Buy for the Biden Presidency

    Biden's take on the minimum wage, likely moves on ...
  • 08:35 AM EST GARY BERMAN

    Thursday Morning Fibocall for 1/21/2021

    SPX (Long-Term View) The 1/20/21 NEW high @ 3859...
  • 11:38 AM EST CHRIS VERSACE

    Best Stocks to Buy for the Biden Presidency

    President-elect Biden's massive stimulus plan, int...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login