By Mark Hulbert

Elon Musk's $1 trillion SpaceX revenue prediction is probably wrong. Contrarian investors are buying these out-of-favor value plays instead.

Invest in companies that are most likely to beat Wall Street's growth and earnings expectations.

Elon Musk almost certainly will be wrong in projecting that SpaceX (SPCX) will post annual revenue of $1 trillion by 2030.

The company's revenue in calendar 2025 was $18.7 billion. To reach Musk's target, it will have to grow at an annualized rate of more than 120% for five years. To put that in context, the S&P 500's SPX revenue per share has grown at a 4.2% annualized rate since the top of the internet bubble in early 2000 - and even that rate was inflated by net share repurchases.

Of course, some companies do grow faster than the market average, and SpaceX could be one. But the number of stocks with above-average growth rates is no greater than you'd expect, assuming that being above average is a matter of luck alone.

That's the conclusion to emerge from research conducted several years ago by Verdad, a money-management firm. The researchers analyzed all U.S. stocks between 1997 and 2022, measuring whether a company with an above-average growth rate in one year is likely to continue growing at an above-average rate in successive years. The results found "little to no evidence" of persistence.

This conclusion echoes a previous study analyzing U.S. stocks over the 47 years from 1951 to 1997. That previous study, entitled "The Level and Persistence of Growth Rates," found that "the odds of an investor successfully uncovering the next stellar growth stock are about the same as correctly calling coin tosses."

The investment implication is precisely what contrarian investors tell us. As the Verdad researchers put it: "When building a discounted cash flow model, it seems analysts might as well plug in the same long-term growth assumption for a SaaS software company as when valuing a coal miner." You could easily substitute "SpaceX" for "SaaS software company" in this conclusion.

The takeaway: There's no reason to pay more for an in-favor growth stock than for an out-of-favor value stock. If the best assumption is that both will grow at the same rate, then invest in the one that is most likely to beat Wall Street's expectations.

With this in mind, I constructed the following list of stocks recommended by two or more of the investment newsletters my auditing firm monitors and whose three-year earnings growth rates have been the worst. Not surprisingly, the 10 stocks in the list below trade at forward price-to-earnings ratios that are well below that of the broad market - 11.8, on average, which is barely half of the S&P 500's 21.5. (Ebitda refers to a company's earnings before interest, taxes, depreciation and amortization.)

The stocks are listed in ascending order of Ebitda growth rates.

Ticker Stock number of newsletters recommending Forward P/E ratio 3-year Ebitda growth rate UFPI UFP Industries 2 16.4 -20.8% ADM Archer Daniels Midland 3 15.4 -20.8% PFE Pfizer 3 8.9 -16.9% COF Capital One Financial 2 9.2 -15.0% UNM Unum Group 2 9.9 -14.9% DHI D.R. Horton 2 13.2 -13.9% TSN Tyson Foods 2 12.5 -13.4% AGCO Agco 2 16.3 -13.3% DVN Devon Energy 2 7.7 -13.3% EOG EOG Resources 2 8.1 -13.0% Source: LSEG, Hulbert Ratings

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

-Mark Hulbert

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