I have previously shared my view that this may be a good time (less than a couple of years out of recession) to focus on growth rather than value. With the economy limping along despite a plethora of challenges, skeptical investors haven’t been aggressively bidding up companies that have succeeded in posting reasonable growth. With this in mind, I wanted to check my own watchlist of 100 companies to see if I might find some potential bargains.
Here is the screen I devised:
· Sales growth (past 4 quarters): > 10%
· Earnings growth (past 4 quarters): > 20%
· Projected sales growth 2012 > 10%
· Projected EPS growth 2012 > 14%
· YTD Price return < 20%
· Earnings Estimates for 2012: No worse than -10% revision over past 3 months
Here is what we get:
As a reminder, remember that these are not recommendations but rather suggestions for further research. I happen to include a few of these in one or more model portfolios at my Invest By Model service, but I don’t mean to imply that they are necessarily better than those that aren’t included.
I have sorted the list by how far the stock is from its 52-week high. As you can see, two are close to new highs and might be viewed as potential breakouts, while the balance of the list is significantly below highs set earlier this year. I have also included a column for the forward PE ratio and how it compares to the average over the past five years. With the exception of one stock, all are trading below the average valuation.
Middleby (MIDD) has been very aggressive with acquisitions. This company makes cooking equipment for restaurants, with several products offering energy efficiency and speed relative to historical offerings. Google (GOOG), the largest on this list by far, is a recent addition to my watchlist. I shared my favorable thoughts in a post last week.
Astec Industries (ASTE) makes equipment for road construction and has been enjoying rapid growth overseas. Catalyst Health (CSHI) is a small Pharmacy Benefits Manager that appears to be poised to benefit from consolidation in the industry. While it is up sharply from when I highlighted it in late 2010, I continue to view its prospects favorably. The recent reduction in estimated earnings for 2012 is a function of an intentional investment by the company to grow sales in 2013 and beyond.
Titanium Metals (TIE) may be leveraged to a powerful growth trend: Boeing’s 787, which, along with the large Airbus offering, consumes large quantities of Titanium. The company is controlled by its Chairman, Harold Simmons. EZCORP (EZPW) is primarily a pawn lender, with growth coming from both domestic and international expansion. I have discussed this one several times over the past couple of years, most recently this summer.
I just added Constant Contact (CTCT) to my watchlist and don’t know it well. I am attracted to its strong growth and note that it is entering its first market outside of North America (UK). Chico’s (CHS) just pulled back after reporting a jump in inventories. I first added the stock to my models in the summer of 2010 and have shared my favorable views previously. I think that their CEO is top-notch and that the company is likely to recover from its recent execution stumble.
Esterline (ESL) is focused primarily on aerospace, and its defense exposure (a total of 40% of sales) is weighing on the stock. The company closed on a substantial acquisition earlier this year that will account for most of the near-term growth. ESL generates significant free cash flow in excess of net income and appears to be a great value to me. Stratasys (SSYS) is a neat company that manufactures 3-D printers that are used to build rapid prototypes as well as plastic parts. The stock has been very volatile this year as an exciting relationship with Hewlett Packard (HPQ) has fizzled. This one is speculative!
So, hopefully I have given you a few ideas to ponder. Part of my investment process is to build a watchlist and to monitor it. Today, I am trying to find growth stocks that I follow that may be offered on the cheap, as the stock prices haven’t kept up with robust earnings growth this year. Of course, the future doesn’t always play out as expected. Remember, screening is only a first step. Before investing, you should do your own investigation to identify risks and potential opportunities.
Founder, Invest By Model and AB Analytical Services
TradeKing All-Star Commentator
Disclosure: Long CHS, ESL and EZPW at Invest By Model
In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.
Alan Brochstein maintains a cross-marketing relationship with TradeKing.
TradeKing selects and defines as All-Stars certain independent market commentators who are recognized industry personalities and experienced traders and who provide timely market commentary via the TradeKing All-Star blog at http://community.tradeking.com/members/tk-all-star/blogs. Each All-Star commentator’s bio, related qualifications and disclosure as to their relationship with TradeKing can be found on the All-Star blog roster, available at http://community.tradeking.com/members/tk-all-star/details. The selection of All-Stars commentators is solely based on the quality and style of the content provided. TradeKing does not measure, endorse, or monitor the performance or correctness of any statement or recommendation made by independent All-Stars commentators on TradeKing.com. Supporting documentation for any claims made in this post will be supplied upon request by the author of the post, Alan Brochstein, who is solely responsible for the views expressed here. Send a private message to All-Stars using the link below the profile image.
Any strategies discussed and examples using actual securities and price data are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.