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- Revenue in most recent quarter and over past 4 quarters up more than 10% from a year ago
- EPS growth projected over next year
As always, please remember: this screen is just an illustration for identifying stocks to research further. You should do a thorough investigation of any stock before investing.
We ended up with quite a varied list, including software and hardware companies as well as a couple of service providers. Let’s take a look at a few of the columns I included, so that we can figure out which of these eight might deserve a closer look. First, notice that only one company, MEMC Electronics Materials (WFR), has more debt than cash – these companies generally have very strong balance sheets.
I also included the 2-year price return, and half of the companies are up over that time-frame, while a few have been hammered. I like the idea of buying a stock that has pulled back rather than one that is in longer-term decline. Akamai (AKAM), F5 Networks (FFIV), NetApp (NTAP) and Autodesk (ADSK) all appear to be in longer-term bull markets. Juniper (JNPR) has declined over the past few years, but, unlike the other three that have declined, it made a new high earlier this year and appears to be in a longer-term rising trend.
Most of the stocks have P/E ratios slightly higher than the market, though two stocks, WFR and Corning (GLW), are trading below 10X. Rather than focus just on the absolute number, I think it’s important to compare the current valuation to where it has been in the past several years. The column next to the P/E indicates all of these stocks are trading well below the average for the past 5 years, with a few at 50% of the average.
For a different perspective, I included the Price to Tangible Book metric in the second-to-last column. This metric is often used by value investors, as discussed in my post, 8 "Deep Value" Stocks: Low Valuations Meet Strong Balance Sheets. In this case, two companies, GLW and WFR, are trading below the value of their tangible assets less their liabilities, suggesting that they might be inexpensive.
The final column is perhaps the most helpful in terms of avoiding a “falling knife”. I have highlighted in green those companies that have been rallying more than the market over the past month, while pointing out the three that have been underperforming in red.
I don’t follow each of these companies closely, but I gather all of them are leaders in their respective industries. While I don’t want to discourage anyone, I believe that the challenges for Monster Worldwide (MWW) and MEMC (WFR) require extra caution. I do follow Akamai (AKAM), F5 (FFIV) and NetApp (NTAP) closely and consider them all to be high quality and reasonably valued. I used to follow Autodesk (ADSK) and believe it jumps out as meriting closer attention.
In stark contrast to ten years ago, technology stocks are among the least expensive in the market right now. It is the largest sector in the market and offers some great attributes, including global exposure, growth, strong balance sheets, market dividends or higher for many companies and (to my reckoning) reasonable valuations. The screen today is designed to identify some potential opportunities among the beaten-up members of the sector.
Disclosure: Alan Brochstein is currently holding no positions in the securities mentioned in this post.
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.
Alan Brochstein maintains a business relationship with TradeKing.