How one asset manager is dealing with 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. S&P 500 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."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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