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The Best Growth Stocks of 2012

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Thanks to a big drop in sales in 2008 and early 2009, a wide number of companies were able to post impressive revenue gains in 2010 and 2011, as demand for goods and services returned to normal levels. But this might be the end of it: analysts expect sales growth to be much more muted in 2012. In fact, only 23 companies in the S&P 500 could be register sales increases of at least 20% in the coming year. In addition, a number of these firms could only hit this mark due to recent acquisitions, which underscores my belief that deal-making will be a prominent investing theme in 2012.

So where can you find growth in the coming year? Here's a list of the select few candidates that could actually post revenue growth next year. Take a look...

For starters, it's impressive to see Amazon.com (Nasdaq: AMZN), Google (Nasdaq: GOOG) and Priceline.com (Nasdaq: PCLN) on this list. These companies are already quite large, and robust growth should be hard to come by at this stage of their businesses. Kudos to their respective management teams for keeping their feet firmly applied to the gas pedal.

You can also find a number of growth-through-acquisitions names on this list. The only area that should see widespread organic growth is in the energy sector, as a number of oil and gas drillers tap into new shale formations across the United States. If natural-gas prices somehow manage to break out of their dismal, ever-lower trading range, then these projected revenue growth rates could spike even higher.

Yet "buying growth" isn't a bad way to boost shareholder value. Ecolab's (NYSE: ECL) December 2011 acquisition of environmental services firm Nalco has been a clear hit with investors, with shares of Ecolab now trading near an all-time high. Ecolab is a leading provider of cleaning products and services, and though the deal doesn't necessarily mark a deep strategic fit, it adds "another business with a track record of generating high returns on invested capital," according to Morningstar.

Ironically, Ecolab's chief rival, Diversey Inc., has just been acquired by packaging firm Sealed Air (NYSE: SEE), setting the stage for more than 50% sales gains for this firm as well. But investors have not been as kind to this deal, partially because of Sealed Air's tepid third-quarter results. Investors appear to be frightened by the amount of debt Sealed Air took on to complete the deal, as net debt now stands at four times pro-forma 2011 EBITDA. Shares trade just above the 52-week low, at about $17.

Still, this sets up a chance for share-price gains when the company starts to address the debt concerns. Management is committed to pay down debt aggressively in 2012 and 2013, and "such deleveraging should ultimately accrue to shareholder value," according to Merrill Lynch, which sees shares rising from a recent $18 to $26.

A winning deal to the rescue?

A quick glance at the price chart for Alpha Resources (NYSE: ANR) tells you investors could care less about acquisition strategies if the sector in question holds little appeal. Alpha acquired Massey Energy in June 2011, capping off a series of deals that made the company a leading exporter of coal. Sales rose from $444 million in 2004 to nearly $4 billion in 2010, and they should approach $9 billion next year (thanks in large part to the Massey purchase).

Still, investors are taking note of the fact that demand for coal in the United States is unlikely to grow in coming years, due to increasingly restrictive environmental regulations. Yet in other parts of the world -- especially in China, which consumes a rising amount of Alpha's coal -- demand shows no sign of letting up.

Alpha's timing was pretty bad. Coal prices slumped in the second half of 2011, so management could have gotten a better price in its purchase of Massey had it waited. That being said, the combined entity now sports a very low-cost structure, and Alpha is on track to generate more than $750 million in free cash flow in 2012 and again in 2013, assuming coal prices stay at current levels.

As a result, the company is buying back stock ($600 million remains on the current authorization that expires in 2014). A move to reinstate a dividend, which was suspended in 2006, may come next. Trading at less than three times projected 2012 EBITDA, this stock could have 50% to 75% upside. Analysts at Sterne Agee say shares could nearly double -- to $35 -- which translates to a  multiple of five on projected 2013 EBITDA of $2.2 billion.

Risks to Consider: Any growth-through-acquisition companies entail a risk of "acquisition indigestion." So it pays to see that a company is on track to generate the sales and expense synergies that underpin any deals.

Action to Take --> It's getting harder to find solid growth stories in this challenged global economic environment. The companies I mentioned here, however, through either internal or external investments, have managed to keep the needle rising higher. With a potential to more than double in some cases, these stocks should be on every investor's radar.   

Disclosure: Neither D. Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared at www.streetauthority.com.

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