AAPL, CHL, INFY: Consistent Growth in Surprising Stocks

Rudy Martin

If the stock market were a basketball team, the non-stop head fakes would demolish LeBron & Co. or any other opponent.

Just when the benchmarks look ready to break out, someone steals the ball and runs the other way!

The Bulls (the ones on Wall Street instead of in Chicago’s United Center) keep getting their hopes crushed by opponents like …

  • Uncertainty about Federal Reserve policy …
  • Anxiety over third-quarter earnings reports …
  • Political back-and-forth on the federal budget and national debt ceiling …
  • A potential government shutdown if the two parties stay deadlocked …
  • The prospect for extended "sequester" spending cuts …
  • Disruptions in the Middle East, and …
  • Further U.S. dollar weakness.

The worries on Wall Street are growing, too. A couple of days ago I keyed the words "stock market uncertainty" into Google News.

I found 15,600 hits for the latest week — compared with 18,800 citations for the entire previous MONTH!

Here’s why …

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Investors who want to avoid this jarring ride don’t have many choices:

  • The bond market has been moving down in recent months, with no sign of a major reversal.
  • Short-term savings earn virtually nothing — and actually lose ground to inflation and taxes.
  • Foreign fixed-income investments are vulnerable to currency swings and political risks.

If you want to stay invested in stocks and try to steer around the storms, I’m with you. There are still good opportunities out there. Finding them is what I do in Global Trend Trader.

For example, I recently searched my stock database for stocks with consistently strong fundamentals. When a company’s management delivers impressive growth year after year, I have more confidence in their future.

Since my mandate is "Global" in scope, I began with 16,751 global common stocks listed on U.S. exchanges, including foreign companies with ADRs. I filtered the list to identify stocks with these attributes:

  • LIQUIDITY: Listed on a major U.S. securities exchange;
  • SUBSTANCE: Annual revenue of at least $3 billion;
  • GROWTH CONSISTENCY: Revenue growth in each of the last 10 fiscal years;
  • CONSISTENT PROFITABILITY: Net earnings growth in each of last ten fiscal years; and
  • INVESTMENT RETURN: Current indicated dividend yield of at least 2%.

This combination sets a very high bar. Most companies hit at least one rough stretch every decade. I expected to see utility stocks, energy giants or major industrial companies.

Who Says Tech, Mobile Telecom Stocks

Can’t Also be Consistent Growth Champs?

Ann’l % Growth in Revenue & Net Earnings,

Past 10 Fiscal Years

I was wrong. To my astonishment, the only three companies that passed every test came from the technology sector.

The super-consistent trio has interesting relationships with each other, too. You might describe them as a sort of high-tech "ecosystem" for the global information economy.

India’s Infosys (INFY) designs software and consults on data-processing applications.

Hong Kong-domiciled China Mobile (CHL) distributes that same information to the public over its wireless communications systems.

People read and process the information on devices made by Apple (AAPL) and its competitors.

The geographic mix is compelling, too. We have one stock from each of the world’s two most populous nations, and another that calls the U.S. home but competes around the globe.

These three names also vary in size. INFY is by no means a "small" company, but it has the smallest market capitalization and revenue in the group, AAPL is the largest by both standards, and CHL is about midway between AAPL and INFY.

Despite their unblemished records for year-over-year revenue and income growth, the shares of these three firms have been trading between 10 and 15 times earnings. CHL’s modest price-to-earnings ratio reflects milder growth in recent years.

(Disclosure: Several of portfolios I manage hold profitable open positions in AAPL, including the Global Trend Trader model.)

With remarkable top-line and bottom-line consistency, these three stocks are definitely worth tracking. I would watch especially for renewed revenue and net income growth at CHL.

I hope to find more than three stocks next time I run this search. As a bonus, here are two more stocks that were tantalizingly close to making the grade.

Creditcorp (BAP) is a Peru-based regional diversified financial stock. BAP failed the dividend yield test by a razor-thin 0.03%.

Church & Dwight (CHD) is a venerable U.S. consumer products name. Like BAP, CHD failed the 2% dividend test with a 1.81% indicated annual payout. At least one of their products is probably in your home right now. CHD brands include Arm & Hammer, Oxi Clean, Orajel oral analgesics and Spinbrush battery-powered toothbrushes and First Response home pregnancy tests.

Growth is never easy, even for one year. Today we saw how few companies grow for 10 consecutive years. Will they do the same the next 10? We never know — but they’re clearly doing something right.

Good luck and happy trading!

Rudy Martin