Many investors often think that growth stocks are different from value stocks. I'm not sure what that really means, as I view growth and value as two sides of the same coin. Growth creates value over time. Sure, there are special situation investments like spin-offs and arbitrage plays, but the vast majority of the investment playing field consists of businesses trying to grow the bottom line.
It's also often the case that high-growing stocks are not necessarily cheap investments. But one has to be careful when making such a distinction. Would you rather pay 30x earnings for a company growing at 25% a year or 10x earnings for a company showing little or no growth? The answer may not be as simple as you think, but it just goes to show the limitations of trying to isolate between growth and value.
But investors can have the best of both worlds at times: growing companies trading at valuations that even die-hard "value" adherents can get excited about. Looking over a list of the 100 fastest-growing companies, I expected to find nothing more than private tech like start-ups trading at stretched valuations. While the list certainly was littered with them, some interesting publicly traded securities caught my eye.
Perhaps most appealing is aircraft-leasing company AerCap Holdings (AER) . Here is a business that trades for less than 8x earnings and is expected to show tremendous growth over the coming years. Based in Ireland, AerCap leases aircraft all over the world from a fleet of more than 1,100 owned aircraft. The stock trades at 86% of book value and has a market cap of more than $7 billion. Airlines the world over are enjoying a renaissance of sorts thanks to lower oil prices and increased passenger demand. Additionally, most airlines are on the cusp of upgrading aging fleets. AerCap is a full service provider; in addition to leasing, it provides aircraft management, maintenance, insurance and other services to customers. Both revenue and profit are expected to grow at a healthy clip over the next few years.
Universal Insurance Holdings (UVE) is a Florida-based insurance company that recently launched a direct-to-consumer online platform that allows people outside Florida to obtain policies. The success of this platform could be huge seeing how the internet has become ingrained in our daily lives. The stock trades for 7x earnings and has a market cap of $800 million. The shares command a price-to-book ratio of 2.3x -- a useful metric for the insurance industry, and a bit on the high side. But the valuation is a byproduct of Universal's strong growth.
As always, these ideas require closer examination before making an investment. But growth creates value, and if you can find growing companies, Mr. Market is likely to reward you in the years ahead.