During these volatile times in the stock markets, how about picking up some growth stocks from industries currently in favor and with strong returns potential in the long haul backed by rising sales and profits?
Our Motley Fool contributors have three hot growth stock ideas for you to consider: Genesee & Wyoming (GWR), Vail Resorts (MTN -2.68%), and Trex Company Inc. (TREX 0.20%).
Let it snow
Dan Caplinger (Vail Resorts): People have shifted their consumption habits, choosing not to accumulate as much stuff in favor of giving themselves experiences they can treasure forever. That trend, along with the ongoing popularity of winter sports, has brought skiing and snowboarding into the limelight, and Vail Resorts has worked hard to give snow enthusiasts the most extensive network of ski resort locations in its widespread network. From Australia to both coasts of North America, winter sports fans will find Vail properties, including the Whistler complex in British Columbia and some of the highest-profile resorts in Colorado and the Lake Tahoe area.
Image source: Getty Images.
August is a good time to look closely at Vail Resorts, because most investors don't pay much attention to the company during its off-season months. Yet now's the time that you can get the best read on season ticket sales for the 2018-19 winter season, and already some of Vail's preliminary numbers show that its acquisition strategy has kept drawing new customers. Bullish shareholders are hopeful that a return to more normal winter weather conditions will help make Vail's locations more popular than ever. With quarterly results not due out until September, interested investors can get a jump on establishing positions if they like the strategic plans that the ski resort giant has for the years to come.
There's no stopping this train
Neha Chamaria (Genesee & Wyoming): "In terms of the pricing environment and the capacity environment, it's a good time to be in the railroad business," said railroad giant CSX's CEO, James Foote, during the company's latest quarterly conference call. The optimism runs across the board, with short-line rail leader Genesee & Wyoming even delivering double-digit growth on its top line in the last two quarters. In fact, the company's revenue, operating income, and operating cash flows have grown at a torrid pace in the past five years, handily beating industry averages.
GWR Revenue (TTM) data by YCharts.
A couple of things have worked in Genesee & Wyoming's favor. First is diversification: The company's operations are widespread across North America, U.K., Europe, and Australia, its top 10 customers make up only about a quarter of its revenue, and no single commodity contributed more than 13% of its sales last year. That hugely helps the company balance out weakness in some commodity markets with strength in others, helping it keep its head above water even during weak business cycles.
Second, aggressive capital spending has turbocharged Genesee & Wyoming's growth in recent years. Key examples include big-ticket acquisitions like RailAmerica and U.K.-based Freightliner Group and joint venture with Macquarie Infrastructure and Real Assets in Australia. Management is keen to explore further opportunities.
Genesee & Wyoming shares have recovered sharply since April after a dismal start to the year. Investors are perhaps taking note of the company's consistently strong operational performance and rightly so. The railroad's strong Q2 numbers and outlook for the year released late last month sets the perfect stage for investors to load up on the stock this month for the long haul.
This winner should keep winning
Jason Hall (Trex Company Inc.): It may sound counterintuitive to suggest buying a stock when it's near its all-time high, but I think investors who don't already own shares of Trex should do very well over the long term to start a position now. And if the stock price does fall in the near term, I'd be inclined to suggest that it would probably be an opportunity to buy even more.
This is because Trex has become a rare combination of the dominant player in its area, commanding nearly half of all sales of recycled composite decking in North America and steadily growing market share. Simply put, Trex has executed incredibly well across its marketing, growing its distribution network, and investing in improved products and more efficient manufacturing. The end result is massive earnings growth and returns for shareholders in recent years:
But with all that growth, Trex is only scratching the surface of its potential. Regular wood commands about 85% of decking volume sales in North America, while Trex makes up less than 10% of volume, and its total sales over the past year barely broke $640 million.
Yes, it trades for a premium valuation of almost 39 times trailing earnings and a still-expensive 33 times 2018 earnings estimates. But its prospects to continue taking market share and grow much larger -- and far more profitable -- over the long term, outweigh the risk of a short-term price drop.
