By Philip van Doorn, MarketWatch
Gilead Sciences, Inc.
As the stock market seesaws, you are no doubt receiving advice to go for “quality” when selecting investments.
A focus on companies with a track record for earnings growth can be a good approach, especially if dividend income is your objective. It will also be important if we are indeed heading into a deflationary “ice age,” which was predicted recently by analysts at Société Générale.
But what’s wrong with investing for growth? Typically, companies with the fastest sales growth can make investors a lot of money. Apple Inc. /zigman2/quotes/202934861/composite AAPL +1.41% has been one of those for years, despite continued nay-saying.
To be sure, a company doesn’t need to show large and steady profits for its stock to soar. Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +4.44% is a notable example, with its stock rising 67% this year. The company’s sales per share over the past 12 months have risen 16%, though earnings per share have been negative.
To find strong and healthy companies, we looked at the S&P 1500 Composite Index and identified those that posted the fastest sales growth while also increasing earnings.
Here are the top 10:
| Company | Ticker | Industry | Sales per share - past 12 months | Sales per share - year earlier | Growth of sales per share |
| Enanta Pharmaceuticals Inc. | /zigman2/quotes/209139157/composite ENTA | Biotechnology | $7.74 | $2.43 | 218% |
| ANI Pharmaceuticals Inc. | /zigman2/quotes/208876066/composite ANIP | Pharmaceuticals | $6.69 | $3.62 | 85% |
| Avago Technologies Inc. | /zigman2/quotes/200646538/composite AVGO | Semiconductors | $23.46 | $13.46 | 74% |
| Gilead Sciences Inc. | /zigman2/quotes/210293917/composite GILD | Biotechnology | $18.04 | $10.43 | 73% |
| Synaptics Inc. | /zigman2/quotes/208827271/composite SYNA | Computer peripherals | $44.02 | $25.90 | 70% |
| Minerals Technologies Inc. | /zigman2/quotes/210546055/composite MTX | Industrial specialties | $56.63 | $33.82 | 67% |
| Lithia Motors Inc. Class A | /zigman2/quotes/202974783/composite LAD | Auto dealers | $259.67 | $167.11 | 55% |
| Balchem Corp. | /zigman2/quotes/202166368/composite BCPC | Specialty Chemicals | $19.18 | $12.48 | 54% |
| Skyworks Solutions Inc. | /zigman2/quotes/201417573/composite SWKS | Semiconductors | $15.90 | $10.66 | 49% |
| Walker & Dunlop Inc. | /zigman2/quotes/205584013/composite WD | Commercial real estate finance | $12.07 | $8.14 | 48% |
| Source: FactSet | |||||
We didn’t include companies that merely shrank their net losses per share. Each company showed positive earnings per share for the past 12 months.
We focused on per-share numbers because these “bake in” any dilution from the issuance of more shares to fund acquisitions, expansion or stock-based compensation for executives. Per-share numbers will also factor in any reduction in share counts from buybacks.
Here’s a set of very impressive EPS growth data for the same group of companies:
| Company | Ticker | Earnings per share - past 12 months | EPS - year earlier | EPS growth |
| Enanta Pharmaceuticals Inc. | /zigman2/quotes/209139157/composite ENTA | $3.53 | $1.78 | 98% |
| ANI Pharmaceuticals Inc. | /zigman2/quotes/208876066/composite ANIP | $3.10 | $0.61 | 408% |
| Avago Technologies Inc. | /zigman2/quotes/200646538/composite AVGO | $3.81 | $1.17 | 226% |
| Gilead Sciences Inc. | /zigman2/quotes/210293917/composite GILD | $9.53 | $4.47 | 113% |
| Synaptics Inc. | /zigman2/quotes/208827271/composite SYNA | $2.82 | $1.25 | 126% |
| Minerals Technologies Inc. | /zigman2/quotes/210546055/composite MTX | $3.44 | $2.26 | 52% |
| Lithia Motors Inc. Class A | /zigman2/quotes/202974783/composite LAD | $6.32 | $4.61 | 37% |
| Balchem Corp. | /zigman2/quotes/202166368/composite BCPC | $2.05 | $1.33 | 54% |
| Skyworks Solutions Inc. | /zigman2/quotes/201417573/composite SWKS | $3.82 | $1.91 | 100% |
| Walker & Dunlop Inc. | /zigman2/quotes/205584013/composite WD | $2.30 | $1.17 | 97% |
| Source: FactSet | ||||
Here’s how those 10 stocks have performed:
| Company | Ticker | Total return - 2015 | Total return - 3 years | Total return - 5 years |
| Enanta Pharmaceuticals Inc. | /zigman2/quotes/209139157/composite ENTA | -22% | N/A | N/A |
| ANI Pharmaceuticals Inc. | /zigman2/quotes/208876066/composite ANIP | -8% | 515% | 10% |
| Avago Technologies Inc. | /zigman2/quotes/200646538/composite AVGO | 27% | 270% | 597% |
| Gilead Sciences Inc. | /zigman2/quotes/210293917/composite GILD | 11% | 252% | 512% |
| Synaptics Inc. | /zigman2/quotes/208827271/composite SYNA | 4% | 144% | 180% |
| Minerals Technologies Inc. | /zigman2/quotes/210546055/composite MTX | -27% | 46% | 85% |
| Lithia Motors Inc. Class A | /zigman2/quotes/202974783/composite LAD | 27% | 263% | 1,333% |
| Balchem Corp. | /zigman2/quotes/202166368/composite BCPC | -14% | 53% | 133% |
| Skyworks Solutions Inc. | /zigman2/quotes/201417573/composite SWKS | 20% | 181% | 366% |
| Walker & Dunlop Inc. | /zigman2/quotes/205584013/composite WD | 32% | 67% | N/A |
| Source: FactSet | ||||
In comparison,the S&P 1500 Composite Index is down 4% this year and has returned 44% over the past three years and 96% over five years. This group measures up quite well against the index for longer periods, but this year’s numbers show just how volatile these names can be in the short run.
So we have a diverse group of companies that is pretty much on fire, growing sales and earnings significantly over the past 12 months. But how do the stock valuations measure up? Our decision to limit the list to those with growing profits means price-to-earnings ratios have some meaning.
Here are current-year and forward price-to-earnings ratios for the group:
| Company | Closing price - Sept. 9 | Consensus 2015 EPS estimate | Consensus 2016 EPS estimate | Price/ 2015 EPS estimate | Price/ 2016 EPS estimate |
| Enanta Pharmaceuticals Inc. | $39.80 | $4.06 | $2.91 | 9.8 | 13.7 |
| ANI Pharmaceuticals Inc. | $51.67 | $2.46 | $3.40 | 21.0 | 15.2 |
| Avago Technologies Inc. | $127.17 | $8.85 | $9.56 | 14.4 | 13.3 |
| Gilead Sciences Inc. | $103.82 | $11.58 | $11.64 | 9.0 | 8.9 |
| Synaptics Inc. | $71.73 | $5.69 | $6.87 | 12.6 | 10.4 |
| Minerals Technologies Inc. | $50.83 | $4.30 | $4.70 | 11.8 | 10.8 |
| Lithia Motors Inc. Class A | $109.87 | $6.77 | $7.61 | 16.2 | 14.4 |
| Balchem Corp. | $57.35 | $2.50 | $2.75 | 23.0 | 20.9 |
| Skyworks Solutions Inc. | $86.42 | $5.26 | $6.17 | 16.4 | 14.0 |
| Walker & Dunlop Inc. | $23.24 | $2.34 | $2.46 | 9.9 | 9.5 |
| Source: FactSet | |||||
In comparison, the S&P 1500 Composite Index trades for 16.4 times the weighted aggregate consensus 2015 EPS estimate among analysts polled by FactSet, and for 14.8 times in 2016. Most of the stocks trade at lower P/E ratios, and even the ones trading higher aren’t outrageously expensive.
Here’s a roundup of analyst sentiment for the stocks:
| Company | Ticker | Closing price - Sept. 9 | Consensus price target | Implied 12-month upside | Share with ‘buy’ or ‘outperform’ ratings |
| Enanta Pharmaceuticals Inc. | /zigman2/quotes/209139157/composite ENTA | $39.80 | $46.67 | 17% | 40% |
| ANI Pharmaceuticals Inc. | /zigman2/quotes/208876066/composite ANIP | $51.67 | $70.33 | 36% | 67% |
| Avago Technologies Inc. | /zigman2/quotes/200646538/composite AVGO | $127.17 | $161.18 | 27% | 92% |
| Gilead Sciences Inc. | /zigman2/quotes/210293917/composite GILD | $103.82 | $125.42 | 21% | 83% |
| Synaptics Inc. | /zigman2/quotes/208827271/composite SYNA | $71.73 | $95.07 | 33% | 82% |
| Minerals Technologies Inc. | /zigman2/quotes/210546055/composite MTX | $50.83 | $75.00 | 48% | 67% |
| Lithia Motors Inc. Class A | /zigman2/quotes/202974783/composite LAD | $109.87 | $123.44 | 12% | 70% |
| Balchem Corp. | /zigman2/quotes/202166368/composite BCPC | $57.35 | $69.67 | 21% | 67% |
| Skyworks Solutions Inc. | /zigman2/quotes/201417573/composite SWKS | $86.42 | $115.86 | 34% | 75% |
| Walker & Dunlop Inc. | /zigman2/quotes/205584013/composite WD | $23.24 | $26.10 | 12% | 43% |
| Source: FactSet | |||||
On the whole, the numbers are telling a positive story for this set of companies. But there are no guarantees. The next step for a long-term investor considering one or more of these stocks is to learn as much as possible about what each company does and carefully consider their growth prospects for the years ahead.
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