Where the Growth Is

Turbulent and unpredictable: That’s the stock market in 2010 so far. The recession last year and the slow slog out of it have severely restricted corporate revenue and profit growth. In fact, of the 2,000 largest U.S. public companies, Bloomberg reports that only 5 percent are forecast to grow revenue and earnings by 20 percent or more in 2010.

Making money in this type of market presents a challenge, because it usually takes strong earnings and revenue growth to drive stock price appreciation. With so few companies with strong growth profiles, one might think it prudent to limit common stock purchases until economic and corporate prospects look brighter. We agree, and continue to bend our portfolios toward income generation while limiting equity exposure to select sectors with favorable trends.

Where are trends favorable, you ask? Some of Minnesota’s fastest-growing companies provide some clues.

Minneapolis-based investment bank Piper Jaffray Companies (NYSE: PJC) is positioned to benefit from a couple of positive trends.

One is the increasing level of merger, acquisition, and initial public offering (IPO) activity in the U.S. and Asia, where Piper has an office. The company benefited from an increase in domestic IPO activity in 2009, and 2010 promises yet more activity, especially with regard to small and midsize companies—Piper’s focus.

The increase in municipal bond offerings also plays to a Piper strength. The company is capitalizing on the popularity of Build America Bonds—taxable municipal bonds where the issuer receives a subsidy equal to 35 percent of the bond’s interest. These bonds, established as part of the 2009 American Recovery and Reinvestment Act, have been popular with state and local governments. About $58 billion of the bonds were issued in 2009; according to New York–based J. P. Morgan, $110 billion may be issued in 2010.

Overall, Piper’s growth still depends heavily on improving trends in economic activity and the return to health of financial markets.

For Compellent Technologies (NYSE: CML) of Eden Prairie, positive industry trends resulted in a surge of revenue. In fact, the recession did little to slow down this provider of corporate digital storage technology. Its revenue has increased at a 100 percent compound annual rate over the past five years.