NEW YORK (CNN/Money) -
After each earnings reporting season, I update my list of 70 top growth stocks. Although the Sivy 70 universe isn't intended to be a short-term buy list for traders, I do add and drop stocks from time to time as their long-term prospects change.
This quarter, I'm adding InterActiveCorp to the list. Barry Diller's company is an extraordinary collection of Internet businesses that consistently turn in attractive profits. The company's earnings growth rate over the next five years is projected to average more than 25 percent annually.
| More Sivy on Stocks
|
|
|
|
|
The question is which stock to replace. When I drop a stock from the Sivy 70, it doesn't mean I dislike the company or think that investors who already own the shares should sell. It simply means that I don't think the stock is as attractive for new purchases as some others are.
The companies on the list with the less impressive growth rates include Boeing, ConocoPhillips, Exxon Mobil, Gannett, Hershey Foods, Oracle and United Technologies.
If one of those seven has to go, which one should it be?
Growth rates aren't the only factors that matter when you're managing a portfolio. For starters, you can't always take projected growth rates at face value. Stocks like Boeing and United Technologies will do far better than projections when the aerospace cycle finally turns. ConocoPhillips and Exxon Mobil depend as much on the level of oil prices as they do on current earnings trends.
In addition, dividends contribute to total returns -- and so a generous yield can make up for a small shortfall in earnings growth.
Finally, it's important to diversify your stock portfolio as much as possible. So a stock in a low-growth industry offers valuable diversification even if it only barely surpasses my benchmarks.
As a result, I'm inclined to hold on to Boeing, ConocoPhillips, Exxon Mobil, Gannett and United Technologies because they could all perform better than the projections if the economy stays strong, as I expect. I'm also willing to keep Hersey Foods as a diversification choice in a slow-growth industry.
Oracle seems like the stock to remove from the list, even though it has gained 22 percent within the past six months and has recently been upgraded by a couple of analysts. There are plenty of other tech stocks among the Sivy 70 that have brighter prospects. And Oracle is the closest in terms of sector to the stock that I'm adding.
Now here's a brief look at InterActiveCorp (IACI: down $0.55 to $32.12, Research, Estimates).
InterActiveCorp includes the HSN home-shopping network, the Expedia travel site, Ticketmaster, online dating service Match.com and lots of other sites.
Like all Internet stocks, this one is quite volatile. Over the past year, the share price has swung from $23 to $42. But with a projected earnings growth rate of more than 25 percent a year, the $32 stock's 35 P/E doesn't seem excessive.
The smartest approach is to buy a small amount at a time and be prepared to hang on for the ride. History suggests that it's smarter to bet on Diller than against him.
Michael Sivy is an editor-at-large for MONEY magazine. Sign up for free e-mail delivery every Tuesday and Thursday of Sivy on Stocks.
|
