MW 20 stocks of companies expected to put up numbers to back investors' new 'growth mindset'
By Philip van Doorn
The co-chief investment officers at Neuberger Berman see a new dynamic in the stock market as investors move on from inflation worries
You have no doubt seen warnings that the U.S. stock market is expensive - it trades high relative to companies' expected profits. This reflects the weighting of the S&P 500 in favor of large technology companies that have been growing rapidly over the past decade. But if you look further down, the valuations aren't so stretched - and you can find many companies favored by analysts to show growth rates to rival Big Tech.
Tuesday's Need to Know column featured comments from Neuberger Berman co-CIOs Jeff Blazek and Erik Knutzen, who wrote that following two years during which investors' thinking was focused on inflation, "a new dynamic is in play." By this, they mean a "growth mindset."
Last week we screened the S&P 500 to see which companies were expected to show the highest compound annual growth rates for revenue from calendar 2024 through calendar 2026. Nvidia Corp. $(NVDA)$ topped that list, with an expected growth rate of 38.5%, based on consensus estimates among analysts polled by FactSet. The list also included a number of surprises.
Below is a similar screen of the S&P MidCap 400 Index MID and the S&P Small Cap 600 Index SML.
Lower valuations lower down
Broadly, investors worried about the high valuation of their S&P 500 SPX index funds might want to add exposure to midcap and small-cap stocks. All three indexes are weighted by market capitalization. But the size limitations for the midcap and small-cap indexes make them naturally less concentrated than the large-cap index. We can illustrate that point with exchange-traded funds that mirror the three indexes.
Company Ticker Weighting of largest 10 holdings
SPDR S&P 500 ETF Trust SPY 36.3%
SPDR S&P Midcap 400 ETF Trust MDY 6.8%
SPDR Portfolio S&P 600 Small Cap ETF SPSM 6.0%
Source: State Street
For small-cap stocks, a commonly cited benchmark is the Russell 2000 RUT. It is made up of the 2,000 companies in the full Russell 3000 Index RUA, which itself is designed to capture 98% of the market value of publicly traded U.S. common stocks.
The Russell 2000 has no other selection criteria. It includes hundreds of unprofitable companies. The S&P Small Cap 600 has a more selective approach. Its criteria for initial inclusion include four consecutive quarters of profitability.
The S&P 500 is highly concentrated because the success of the largest technology companies has been rewarded. Adding exposure to the midcap and small-cap indexes is an easy way to increase the diversification of a domestic equity portfolio.
Now let's take a look at forward price-to-earnings ratios for the three indexes. These are stock prices divided by rolling 12-month earnings-per-share estimates, weighted by market cap. The S&P 500 trades at a significantly higher level than its five-year and 10-year average valuations, while the midcap and small-cap indexes are only slightly above their averages. You might need to scroll the table to see all the data.
Index Forward P/E to 10-year average Forward P/E to 10-year average Forward P/E 5-year average forward P/E 10-year average forward P/E
S&P 500 111% 120% 22.3 20.1 18.6
S&P Mid Cap 400 101% 102% 16.2 16.0 15.9
S&P Small Cap 600 102% 102% 16.0 15.6 15.7
Source: FactSet
Screening the S&P 400 Mid Cap and S&P 600 Small Cap Indexes
We screened consensus revenue estimates for companies in the two indexes among analysts polled by FactSet through 2026, with 2024 as the baseline. The annual sales estimates were adjusted by FactSet for calendar years, for any companies with fiscal years not matching calendar years. The screen was limited to companies covered by at least five analysts polled by FactSet.
Here are the 20 companies that passed the screen with the highest projected compound annual growth rates (CAGR) for revenue through calendar 2025:
Company Ticker Industry Two-year estimated sales CAGR through 2026 Cytokinetics Inc. CYTK Pharmaceuticals 803.5% Ready Capital Corp. RC Real Estate Investment Trusts 90.9% MP Materials Corp Class A MP Metals/ Minerals 70.9% Arrowhead Pharmaceuticals Inc. ARWR Biotechnology 63.8% Xencor Inc. XNCR Biotechnology 63.4% Expand Energy Corp. EXE Integrated Oil 58.6% TechTarget Inc. TTGT Data Processing Services 54.6% Krystal Biotech Inc. KRYS Biotechnology 54.2% TG Therapeutics Inc. TGTX Pharmaceuticals 52.6% Sarepta Therapeutics Inc. SRPT Pharmaceuticals 46.6% Uniti Group Inc. UNIT Real Estate Investment Trusts 46.6% Atlantic Union Bankshares Corp. AUB Regional Banks 38.1% Viper Energy Inc. VNOM Integrated Oil 33.4% MARA Holdings Inc. MARA Data Processing Services 33.2% Comstock Resources Inc. CRK Oil and Gas Production 30.6% Renasant Corp. RNST Regional Banks 29.9% Dime Community Bancshares Inc. DCOM Regional Banks 29.2% UMB Financial Corp. UMBF Regional Banks 29.1% CNX Resources Corp. CNX Integrated Oil 28.6% Silicon Laboratories Inc. SLAB Semiconductors 27.9% Source: FactSet
A screen that includes small-cap stocks can feature eye-popping estimates, and Cytokinetics Inc. (CYTK) tops the list with analysts expecting exponential revenue growth. Based on trial results so far, analysts expect the company to bring new medications to market described as "first-in-class muscle activators and next-in-class muscle inhibitors as potential treatments for debilitating diseases in which muscle performance is compromised and/or declining," in its most recent 10-Q report filed in November. This is a widely covered company, with 21 analysts polled by FactSet for the consensus estimates. Cytokinetics is expected by analysts to be unprofitable at least through 2026.
Here is a summary of analysts' opinions of these stocks. You may need to scroll the table to see the consensus price targets:
Company Ticker Share "buy" ratings Share neutral ratings Share "sell" ratings Feb. 14 price Cons. price target Implied 12-month upside potential Cytokinetics Inc. CYTK 86% 14% 0% $46.16 $79.75 73% Ready Capital Corp. RC 11% 78% 11% $6.73 $8.13 21% MP Materials Corp Class A MP 69% 31% 0% $23.72 $24.30 2% Arrowhead Pharmaceuticals Inc. ARWR 64% 36% 0% $19.95 $41.42 108% Xencor Inc. XNCR 92% 0% 8% $16.31 $32.91 102% Expand Energy Corp. EXE 74% 23% 3% $105.33 $117.93 12% TechTarget Inc. TTGT 50% 50% 0% $15.81 $25.80 63% Krystal Biotech Inc. KRYS 100% 0% 0% $153.24 $206.29 35% TG Therapeutics Inc. TGTX 87% 0% 13% $30.71 $40.33 31%
MW 20 stocks of companies expected to put up numbers to back investors' new 'growth mindset'
By Philip van Doorn
The co-chief investment officers at Neuberger Berman see a new dynamic in the stock market as investors move on from inflation worries
You have no doubt seen warnings that the U.S. stock market is expensive - it trades high relative to companies' expected profits. This reflects the weighting of the S&P 500 in favor of large technology companies that have been growing rapidly over the past decade. But if you look further down, the valuations aren't so stretched - and you can find many companies favored by analysts to show growth rates to rival Big Tech.
Tuesday's Need to Know column featured comments from Neuberger Berman co-CIOs Jeff Blazek and Erik Knutzen, who wrote that following two years during which investors' thinking was focused on inflation, "a new dynamic is in play." By this, they mean a "growth mindset."
Last week we screened the S&P 500 to see which companies were expected to show the highest compound annual growth rates for revenue from calendar 2024 through calendar 2026. Nvidia Corp. (NVDA) topped that list, with an expected growth rate of 38.5%, based on consensus estimates among analysts polled by FactSet. The list also included a number of surprises.
Below is a similar screen of the S&P MidCap 400 Index MID and the S&P Small Cap 600 Index SML.
Lower valuations lower down
Broadly, investors worried about the high valuation of their S&P 500 SPX index funds might want to add exposure to midcap and small-cap stocks. All three indexes are weighted by market capitalization. But the size limitations for the midcap and small-cap indexes make them naturally less concentrated than the large-cap index. We can illustrate that point with exchange-traded funds that mirror the three indexes.
Company Ticker Weighting of largest 10 holdings
SPDR S&P 500 ETF Trust SPY 36.3%
SPDR S&P Midcap 400 ETF Trust MDY 6.8%
SPDR Portfolio S&P 600 Small Cap ETF SPSM 6.0%
Source: State Street
For small-cap stocks, a commonly cited benchmark is the Russell 2000 RUT. It is made up of the 2,000 companies in the full Russell 3000 Index RUA, which itself is designed to capture 98% of the market value of publicly traded U.S. common stocks.
The Russell 2000 has no other selection criteria. It includes hundreds of unprofitable companies. The S&P Small Cap 600 has a more selective approach. Its criteria for initial inclusion include four consecutive quarters of profitability.
The S&P 500 is highly concentrated because the success of the largest technology companies has been rewarded. Adding exposure to the midcap and small-cap indexes is an easy way to increase the diversification of a domestic equity portfolio.
Now let's take a look at forward price-to-earnings ratios for the three indexes. These are stock prices divided by rolling 12-month earnings-per-share estimates, weighted by market cap. The S&P 500 trades at a significantly higher level than its five-year and 10-year average valuations, while the midcap and small-cap indexes are only slightly above their averages. You might need to scroll the table to see all the data.
Index Forward P/E to 10-year average Forward P/E to 10-year average Forward P/E 5-year average forward P/E 10-year average forward P/E
S&P 500 111% 120% 22.3 20.1 18.6
S&P Mid Cap 400 101% 102% 16.2 16.0 15.9
S&P Small Cap 600 102% 102% 16.0 15.6 15.7
Source: FactSet
Screening the S&P 400 Mid Cap and S&P 600 Small Cap Indexes
We screened consensus revenue estimates for companies in the two indexes among analysts polled by FactSet through 2026, with 2024 as the baseline. The annual sales estimates were adjusted by FactSet for calendar years, for any companies with fiscal years not matching calendar years. The screen was limited to companies covered by at least five analysts polled by FactSet.
Here are the 20 companies that passed the screen with the highest projected compound annual growth rates (CAGR) for revenue through calendar 2025:
Company Ticker Industry Two-year estimated sales CAGR through 2026 Cytokinetics Inc. CYTK Pharmaceuticals 803.5% Ready Capital Corp. RC Real Estate Investment Trusts 90.9% MP Materials Corp Class A MP Metals/ Minerals 70.9% Arrowhead Pharmaceuticals Inc. ARWR Biotechnology 63.8% Xencor Inc. XNCR Biotechnology 63.4% Expand Energy Corp. EXE Integrated Oil 58.6% TechTarget Inc. TTGT Data Processing Services 54.6% Krystal Biotech Inc. KRYS Biotechnology 54.2% TG Therapeutics Inc. TGTX Pharmaceuticals 52.6% Sarepta Therapeutics Inc. SRPT Pharmaceuticals 46.6% Uniti Group Inc. UNIT Real Estate Investment Trusts 46.6% Atlantic Union Bankshares Corp. AUB Regional Banks 38.1% Viper Energy Inc. VNOM Integrated Oil 33.4% MARA Holdings Inc. MARA Data Processing Services 33.2% Comstock Resources Inc. CRK Oil and Gas Production 30.6% Renasant Corp. RNST Regional Banks 29.9% Dime Community Bancshares Inc. DCOM Regional Banks 29.2% UMB Financial Corp. UMBF Regional Banks 29.1% CNX Resources Corp. CNX Integrated Oil 28.6% Silicon Laboratories Inc. SLAB Semiconductors 27.9% Source: FactSet
A screen that includes small-cap stocks can feature eye-popping estimates, and Cytokinetics Inc. (CYTK) tops the list with analysts expecting exponential revenue growth. Based on trial results so far, analysts expect the company to bring new medications to market described as "first-in-class muscle activators and next-in-class muscle inhibitors as potential treatments for debilitating diseases in which muscle performance is compromised and/or declining," in its most recent 10-Q report filed in November. This is a widely covered company, with 21 analysts polled by FactSet for the consensus estimates. Cytokinetics is expected by analysts to be unprofitable at least through 2026.
Here is a summary of analysts' opinions of these stocks. You may need to scroll the table to see the consensus price targets:
Company Ticker Share "buy" ratings Share neutral ratings Share "sell" ratings Feb. 14 price Cons. price target Implied 12-month upside potential Cytokinetics Inc. CYTK 86% 14% 0% $46.16 $79.75 73% Ready Capital Corp. RC 11% 78% 11% $6.73 $8.13 21% MP Materials Corp Class A MP 69% 31% 0% $23.72 $24.30 2% Arrowhead Pharmaceuticals Inc. ARWR 64% 36% 0% $19.95 $41.42 108% Xencor Inc. XNCR 92% 0% 8% $16.31 $32.91 102% Expand Energy Corp. EXE 74% 23% 3% $105.33 $117.93 12% TechTarget Inc. TTGT 50% 50% 0% $15.81 $25.80 63% Krystal Biotech Inc. KRYS 100% 0% 0% $153.24 $206.29 35% TG Therapeutics Inc. TGTX 87% 0% 13% $30.71 $40.33 31%
(MORE TO FOLLOW) Dow Jones Newswires
February 18, 2025 10:20 ET (15:20 GMT)
MW 20 stocks of companies expected to put up -2-
Sarepta Therapeutics Inc. SRPT 91% 5% 4% $107.95 $182.57 69%
Uniti Group Inc. UNIT 40% 40% 20% $5.82 $5.80 0%
Atlantic Union Bankshares Corp. AUB 80% 20% 0% $37.45 $46.60 24%
Viper Energy Inc. VNOM 100% 0% 0% $49.41 $59.00 19%
MARA Holdings Inc. MARA 36% 64% 0% $16.90 $27.00 60%
Comstock Resources Inc. CRK 11% 72% 17% $18.56 $16.93 -9%
Renasant Corp. RNST 67% 33% 0% $38.45 $43.83 14%
Dime Community Bancshares Inc. DCOM 100% 0% 0% $31.34 $41.00 31%
UMB Financial Corp. UMBF 67% 33% 0% $111.86 $138.44 24%
CNX Resources Corp. CNX 12% 41% 47% $30.19 $30.43 1%
Silicon Laboratories Inc. SLAB 42% 41% 17% $149.54 $144.89 -3%
Source: FactSet
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-Philip van Doorn
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February 18, 2025 10:20 ET (15:20 GMT)
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