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How one asset manager is dealing with the growth investor’s dilemma

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Jason Donville on the growth investor’s dilemma

In a world that is mired in sluggish growth, those looking to buy attractively valued growth stocks may need to get creative.

"The combination of low interest rates and a slowing global economy makes it really, really tough to find growth at a reasonable price," Jason Donville, who runs Toronto-based Donville Kent Asset Management, said Thursday on CNBC's "Trading Nation. "

Most obviously, slow economic growth — which Donville blames on demographic problems — means that most companies aren't expanding particularly quickly. earnings are set to log their fourth quarterly decline, while revenue is set to drop for the sixth straight quarter, according to numbers compiled by Thomson Reuters.

And while some companies are growing quickly, they are often trading at majorly high valuations. For instance the four (nonenergy) companies with the highest long-term earnings growth rates are Amazon, Vertex, Netflix and Facebook, per FactSet. These stocks are now trading at valuations of 89 times, 44 times, 146 times and 27 times forward earnings per share, respectively.

"In anything where you've had really steady regular growth, the valuations are pretty rich right now," the asset manager said.

But that's not to say Donville doesn't spot pockets of opportunity.

Growth is "either coming from companies that make new, new things — which is a relatively small part of it — from those who are just really, really effective capital allocators."

This second type of company manages to grow through acquisition; as Donville explains, he is referring to "strong companies that are able to consolidate mediocre businesses."

While companies that grow "nonorganically" are frequently derided by investors, Donville says that many of these companies actually pose compelling opportunities. And more to the point, "That's where you've got to be willing to find growth in this type of environment."

To him, one stock that fits this bill is serial acquirer CGI Group, "an attractive company with an excellent track record of being a great return-on-equity business that is better at allocating capital than your typical IT services company."