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3 growth picks for 2014

The conclusion to 2013 saw the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) notch up a return of 15% for the year. That’s a very healthy return – in fact if investors were to achieve a return of 15% on their money every year then they would double their wealth every five years!

Despite some economists being concerned about Australia’s growth prospects now that the mining boom has cooled, there is still plenty of reason to be positive on the prospects for a select number of companies to continue to grow their businesses in 2014.

Here are three companies that I think will continue to perform well in 2014, but bear in mind that the stock prices of all three significantly outperformed the index last year and their share prices may already have been pushed to levels that fully reflects their future growth prospects.

Carsales.com (ASX: CRZ)

The online automotive classified advertising firm has taken a huge slice of business from Fairfax Media (ASX: FXJ) and News Corp (ASX: NWS), whose newspapers used to dominate classified advertising. In financial-year (FY) 2009, Carsales.com recorded net profit after tax (NPAT) of $30.7 million, by FY 2013 NPAT grew to $83.5 million. With consensus forecasts for double-digit growth in earnings per share, Carsales.com’s market share and profitability looks set to keep on rising in 2014.

SEEK (ASX: SEK)

Just as Carsales.com has played havoc with the automobile classified businesses of newspaper owners, SEEK has arguably had an even more profound impact on the employment and recruitment classified advertising space.

Excluding significant items SEEK has grown NPAT from $76.1 million in FY 2009, to $141.1 million in FY 2013. While a significant amount of this profit has come at the expense of domestic newspapers, the firm has also impressively expanded its operations both overseas and in the education sector. Other impressive metrics from the firm include dividends which have increased by over 20% for four consecutive halves and compound annual revenue growth rates from FY 2004 to FY 2013 of 38%. While growth rates at these levels will naturally have to slow at some point, SEEK’s long-term outlook continues to remain sound.

REA Group (ASX: REA)

My third growth pick for 2014 is real estate classified advertising business REA. With the property market firing and new home building heating up, REA is well placed to see more placements on its websites. In FY 2013 REA recorded 26% growth in NPAT, while over the five years from 2009 to 2013, profits have increased from $28.7 million to $109.7 million. Pleasingly for shareholders in News Corp, their firm owns 61.6% of REA, which means they have benefited from REA’s growth in one way.

Foolish takeaway

Carsales.com, SEEK and REA are market leaders in their respective fields and are all high quality businesses with better than average long-term growth potential. I think they are worthy additions to a portfolio at the right price.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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