Thoughts On Growth Stocks: Apple, Sherwin-Williams, Disney

Here are some growth stocks that have recent positive catalysts. All three companies are managed well, which drives their stocks to outperform over the long-term. They all have a tendency to grow earnings at above average rates, which drives the stock's outperformance.

The Lower-Priced iPhone SE

Apple (AAPL) will expand its user base with the 4 inch SE model iPhone. It's not that fans of the 6S and the 6S Plus will want to convert to the new SE model. However, owners of the iPhone 5S who prefer a 4 inch phone may be interested in the SE model for its improved 12MP camera and more powerful features (A9 chip, Apple Pay, stronger battery life, etc). My take is that the lower cost of the SE ($399 as compared to $650 for an iPhone 6S with 16GB) will also broaden Apple's customer base. The lower cost of the SE is likely to attract new customers to Apple who wouldn't have bought an iPhone at the higher price points.

The lower cost SE is a good product for the India and China markets. China has a number of low-cost smartphone producers such as Xiaomi, Huawei, and Meizu. The lower-priced SE model will compete with the lower-priced competitors in China. More people in China are likely to consider the SE with its lower price as compared to Apple's previous models. Apple is an aspirational brand in China. Therefore, more China consumers are likely to aspire to own an SE model since it is more affordable.

The SE model is likely to sell well in India because of its powerful features and reasonable price. India is an emerging market where its citizens earn less on average than in more developed countries, so a lower cost iPhone makes sense. Apple is an aspirational brand in India as well. Therefore, if Apple can capture the top 2% of earners out of India's population of over 1.2 billion, then that will represent sales of 24 million iPhones. That won't happen all at once, but it illustrates the sales potential with a small percentage of the population in India.

The lower priced SE is likely to attract price conscience smartphone consumers around the world including many in the U.S. I think that there are plenty of cost-conscious consumers who are willing to buy the SE because of its lower price. Some might be current iPhone owners looking to upgrade. Apple is also likely to experience some conversion from Android users to the SE to get a more powerful smartphone at a reasonable price.

Merger Painting a Nice Picture

Sherwin-Williams (SHW) is aiming to acquire Valspar (VAL) for $113 per share. Investors have an opportunity for a 7.6% gain if the deal closes successfully since Valspar is trading at $105. The merger will strengthen Sherwin-Williams' presence in the coatings market. Both brands complement each other on the shelves at Lowe's (LOW), thus making the merger a natural fit. Sherwin-Williams already was a leader in the Basic Materials sector. So, the merger will make the combined company a stronger presence in the sector.

Sherwin-Williams expects to gain $280 million in annual synergies from the merger. The synergies are expected to come from sourcing, SG&A and other operating efficiencies. The synergies will provide a boost to the bottom line, while Valspar adds about $4 billion to $5 billion in annual revenue to the top line. The additional revenue from Valspar represents over 34% of SHW's total expected 2016 revenue.

Sherwin-Williams is likely to continue its strong stock performance as it grows earnings at strong double-digit rates. The company is expected to grow earnings at 11% to 12% this year and at about 12% next year according to consensus. However, the synergies of the merger could boost those figures, depending on when the deal closes.

Disney Continues Success at the Box Office

Disney (DIS) rarely fails at the box office and the recent success of Zootopia reinforces this. The animated Zootopia movie is outperforming expectations by 50% to 60%. The movie earned a record $73.7 million for a Disney animation in its first three days. Those results were better than Frozen which earned $67.4 million in its first three days. The better than expected results should help boost the stock as the box office sales continue to grow.

Frozen's success led to strong merchandise sales of $107.2 billion. So, it is likely that something similar will happen to Zootopia. The cute animal characters in Zootopia have potential for strong merchandise sales.

The success of Zootopia is a strong follow-up to The Force Awakens Star Wars movie. Disney benefited from over $700 million in Star Wars related merchandise sales in 2015. This is in addition to over $2 billion that the Force Awakens earned from box office sales.

I'm confident that Disney will do well over the long-term due to its strong ability to create popular content. The company is likely to remain a leader and survive any fears about ESPN losing business to cable cord cutters. Disney is finding other ways to grow the ESPN business. A few examples of this are: offering ESPN on the Sony PlayStation view service and on the Sling TV streaming service.

Disclaimer:This article represents the author's opinions.  Investors should do their own due diligence and consult with an investment advisor to determine which stocks are right for ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

David P. Matthews 8 years ago Member's comment

Looking forward to more - added you to my follow list.

Joe Economy 8 years ago Member's comment

Although climbing in the past month or so, I do think that Apple's more or less stagnant stock will continue to edge up and down based on rumors of new and improved versions of the IPhone. But I will say it again that I think Apple needs to move beyond its dependency on a single product and branch out to other ideas. In car media might be the growth phenomenon that it needs to boost the company. There are a number of really good competitors out there including Android and Parrot so the in car media space remains to be played out in full as yet. I do believe Disney is a broader investment choice with more room to grow as it grows market strength in China and the developing world. It too is vulnerable to the successes of its latest movie productions which can be hot or miss but in the long run, its a better growth stock. Worryingly also is that Disney's stock is rather stagnant down around 5% year to date and seemingly stuck around the $100 level. Stock analysts are also cautious with 14 out of 34 recommending only a hold position, with 5 strong buys and 13 buys. Interesting to see if these 2 stocks can break beyond their comfort zones?

Susan Miller 8 years ago Member's comment

The $SHW and $VAL merger is certainly promising.

Kirk Sheffield 8 years ago Member's comment

Very good picks here. $DIS in particular has just been killing it lately with one major win after another. And they certainly know how to squeeze every last dollar from each box office hit.

Kurt Benson 8 years ago Member's comment

I agree @[Kirk Sheffield](user:24174) Elsa is outselling Barbie, Star Wars is king again and now everyone's crazy over Zootopia. I haven't seen it yet but did see the trailer at the Star Wars movie and it's on my list. I'm bullish $DIS & $AAPL.