Here we are with fewerthan two months to go, and stocks, as measured by the S&P 500, have goneessentially nowhere this year as the market has had to contend with fears ofslowing growth or even another recession. With growth a bit more difficult to achieve compared to 2009-2010,companies that have put up solid growth have attracted investor attention, withgrowth stocks outperforming value stocks in this environment. As of 10/31, the S&P 500 “growth”component had returned 4.5% in 2011, while the “value” component had lostalmost 2%. Similarly, for theS&P 500 Small-Cap, the “growth” component had gained 2.5%, while the“value” component had lost 4%.
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In a slowing economy,investors tend to crowd into companies that can grow their earnings, avoidingcyclicals that can struggle in this type of environment. While the overall market has been flatthis year and is down 8% or so from the highs set in late April, many growthstocks have powered to 52-week or even all-time highs during thisconsolidation. With this in mind,I wanted to screen for growth stocks that are performing well to see if I mightfind some new ideas.
Here are the constraintsI used:
? MarketCap: $500mm-$4bln
? Within4% of 52-week High
? One-yearSales Growth > 15%
? 2012Projected EPS Growth > 20%
? 50dma> 200dma
? ForwardPE > 15
The goal of the search,then, is to find relatively smaller companies near their 52-week highs that aregrowing relatively rapidly with an expectation that they may possibly growstrongly next year. I wanted to restrictthe candidates to those whose 50dma is above the 200dma in order to gaugetechnical strength. Finally, bylimiting the PE to 15 or higher, we receive some confirmation that the markethas some confidence in the name given the premium valuation.
Please remember that thisscreen is just an illustration for identifying stocks to research further. You should do a thorough investigationof any stock before deciding to invest.
Our screen resulted infour different economic sectors with representation. I recently began followingSourcefire (FIRE) more closely, but I am not expert in any of these names. What follows are my initialobservations.
Rex Energy (REXX) isprimarily a Marcellus Shale play, where there has been a lot of merger activitythis year. Almost all of its YTDgain has come in the past few weeks. Insiders own an impressive 21% of the company.
HMS Holdings (HMSY) justbroke away from a tight consolidation to an all-time high. The company helps Medicare, Medicaidand other government healthcare programs detect fraud. Now, that sounds like a growthbusiness!
Advisory Board (ABCO)publishes research and analysis for the healthcare and educational industrieson a subscription basis to over 3000 clients. The stock recently moved to an all-time high.
Sourcefire (FIRE) is acyber-security firm that provides intrusion detection and prevention withhardware and software solutions. The management team seems very strong here, with deep industryexperience. There have beenconcerns over high exposure to the federal government, but a strong quarterpushed it recently to the top of a tight range over the past year.
IAC/Interactive (IACI) isthe “cheapest” stock in terms of PE ratio and looks more like “growth at areasonable price” compared to the other names, which are more “aggressivegrowth”. The company is controlledby Barry Diller and operates more than 50 different internet brands (ask.com,match.com).
I wrote about OpnetTechnologies (OPNT) earlierthis year, highlighting its large insider ownership in an article intendedto share some ideas about how to find attractive Small-Caps. The software company trades near anall-time high.
So, hopefully I havegiven you a few ideas to investigate further. These are stocks that might deserve closer attention.Remember, screening is a starting point as part of a more thorough investmentprocess.
Disclosure: Nopositions in any companies mentioned
Inreading 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 rationalethat may be compelling, you must ultimately decide whether or not to put yourown money at risk. Consider the following when making an investment decision:your financial and tax situation, your risk profile, and transaction costs.
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Anystrategies discussed and examples using actual securities and price data arefor educational and illustrative purposes only and do not imply arecommendation or solicitation to buy or sell a particular security or toengage in any particular investment strategy. In reading content in the TraderNetwork, 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, youmust ultimately decide whether or not to put your own money at risk. Considerthe following when making an investment decision: your financial and taxsituation, your risk profile, and transaction costs.