Howard Ward runs GAMCO’s growth fund. He appeared on Bloomberg TV last Wednesday to give four of his top growth picks. Ward likes Apple Inc. (NASDAQ:AAPL), QUALCOMM, Inc. (NASDAQ:QCOM), Whole Foods Market, Inc. (NASDAQ:WFM), and Starbucks Corporation (NASDAQ:SBUX). What should investors make of his picks?
Apple is his largest holding
Apple Inc. (NASDAQ:AAPL) is Ward’s largest holding. He likes the company for a variety of reasons, including potential cash payouts and global growth.
Ward remarked that Apple is slated to earn $42 billion this year, more than any other U.S. company. He believes that Apple will begin selling a cheaper iPhone in emerging markets sometime this year, which will help the company grow globally.
Ward also sees potential for Apple Inc. (NASDAQ:AAPL)’s cash pile. He thinks that the company could easily raise its dividend by 50%, as well as use some of its larger cash hoard to pay out a special dividend.
None of Ward’s arguments for Apple are particularly noteworthy. Others have predicted that the company would launch a low-priced iPhone for some time, while the steady stream of cash the company generates is known to anyone who has read a recent earnings report.
But whether or not Apple Inc. (NASDAQ:AAPL) will actually do these things remains to be seen. If investors believe that the company will, then perhaps they should consider following Ward into the trade.
Qualcomm remains a play on all mobile devices
Ward likes QUALCOMM, Inc. (NASDAQ:QCOM) as a play on all mobile devices. The company is the leader in CDMA technology, and Ward argues that as networks around the world go from 2G to 3G to LTE, the company benefits.
Ward also believes that the company trades at a relatively cheap valuation, just 10 times operating cash flow.
Ward’s right in that Qualcomm is a diversified play on mobile devices. Whether the hot phone is made by Apple Inc. (NASDAQ:AAPL), Samsung, Research In Motion Ltd (NASDAQ:BBRY), or some other company, Qualcomm likely gets a sale.
But that said, is the company really worthy of the title of “growth stock”? Shares are up over 70% in the last five years, but a paltry 0.5% in the last year. Once again, Ward’s bullish logic on QUALCOMM, Inc. (NASDAQ:QCOM) isn’t really news to anyone — the chip-maker has long been seen as a mobile component supplier.
There’s also the possibility that smartphones may have hit saturation. Asymco (via Businessinsider) predicts that smartphones will make up 80% of the U.S. phone market by August next year. If smartphone growth has peaked, it’s hard to see how much growth is left in Qualcomm.
Whole Foods will benefit from a secular trend
Ward argues for Whole Foods on the grounds that the company represents a growing secular trend, namely that people increasingly “care about what they eat.”
Ward believes the company will triple its store count, and likes the impressive growth Whole Foods has experienced.
There are two issues with Whole Foods. The first is the company’s valuation: Whole Food’s (NASDAQ:WFM) price-to-earnings ratio of 32.5 is nearly double that of the S&P 500’s.
The second issue is the possibility that the organic food craze may prove to be somewhat of a fad. Several scientific studies have cast doubt on the supposed benefits of eating organic, including this Stanford study from last fall.
However, if investors believe eating organic is here to stay, and can live with Whole Food’s valuation, it might be a solid pick.
Starbucks is a global growth story
Ward likes Starbucks Corporation (NASDAQ:SBUX) as a play on global growth. Starbucks has been aggressively expanding overseas, and Ward likes the company’s growth in markets such as China, India, Vietnam and Korea. Ward also believes the company can continue to grow in the US.
The question here is really one of viability of Starbucks’ model on a global basis. Can Starbucks, like McDonald’s before it, become a staple bastion of American culture in markets across the globe?
If investors believe the company can convince Vietnamese and Indian consumers to pay $5 for a latte, then perhaps Starbucks Corporation (NASDAQ:SBUX) makes sense as a growth investment.
Playing Ward’s picks
Frankly, none of these picks are shocking. In fact, Ward’s logic for these stocks is fairly well established in the investment community. Consequently, they might not offer the sort of upside investors are looking for when they think of “growth stocks.”
All of these companies have fairly well-established businesses, so risk is likely limited. But investors looking for growth might want to look elsewhere.
The article 4 Growth Picks from GAMCO’s Howard Ward originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.
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