14 Stocks Sticking Close to Their 10-Year Highs
I have discussed before the strategies of buying stocks with “momentum” or stocks that are “contrarian”, that is, out of favor and performing poorly. Not every stock falls into this category, of course, and sometimes the best stocks to buy can be ones that had momentum but are now consolidating their recent gains.
With this in mind, I wanted to share a screen I regularly run to identify stocks that look potentially poised to “uncoil” or break out of a consolidation pattern. I will share the screen criteria below, but I want to first describe the twist. While I'm usually looking for stocks near their one-year high, in this case I wanted to find stocks that have exceeded their peaks from 2007 or 2008. The goal was to find some stocks of companies that must be doing something right, as the overall market remains down over the past 4 years. (At least that's the theory.) As you will see, the screen is not just about price performance, as there are several other variables involved.
For this exercise, I chose the following constraints:
· Market Cap: > $500mm
· 1-month Price Return > 3%
· 3-month Price Return > 3%
· 3-month Price Return < 25%
· Price / 52-Week Low < 100%
· Price / 52-Week High > 90%
· PE/10yr Median < 1.6
· 2012 PE/ Long-term Growth Rate (PEG ratio) < 1.4
· 3-Month Earnings Revision for 2012 > -2%
[click the image above to enlarge it]
As a reminder, this screen is for illustrative purposes only and should not be taken as a recommendation. The goal of the exercise is to help us to identify potential candidates to consider for investment. You should always do your own research and due diligence before investing.
I like this list, as these stocks come from various sectors of the market, range from small to large and appear relatively inexpensive (13.6 average P/E and typically below 1 on the PEG ratio and below its median over the past decade). A very encouraging fundamental signal of improving stock prices is improving earnings, and every one on this list is seeing positive revisions to its earnings estimates for next year. Let’s run through each name briefly.
BMC Software (BMC) provides software and services primarily to large companies and is often mentioned by market pundits as an acquisition candidate. With that said, their valuation seems fair to me, especially taking into account their sizeable cash hoard.
Cash America (CSH) operates pawn stores and also offers unsecured consumer lending in stores or over the internet. Among businesses of this type, I actually prefer a competitor of theirs, which also made the list and which I address below.
Dollar Tree (DLTR) is one of several publicly-traded “dollar stores”, offering low-priced merchandise (primarily priced at $1 or less) in its 3,800 stores. This company did well before the Great Recession and continues to look good.
Encore Capital Group (ECPG) buys defaulted consumer debt at a deep discount. Sadly, this sounds like a very promising business these days. ECPG's sales and earnings have been and are expected by analysts to continue to grow upwards of 20%.
EZCorp (EZPW), like CSH, operates pawn stores and makes payday and other types of loans to individuals. Their balance sheet looks better to me than that of CSH, and they also are expanding internationally at a more rapid pace. Again, these businesses seem likely to do well in the current economic climate.
Hibbett Sports (HIBB) operates sporting good stores primarily in the Southeast, Southwest and Mid-Atlantic regions. The company has a strong balance sheet, but the valuation seems a bit high in my view.
Enpro Industries (NPO) is an industrial company that manufactures a variety of engineered products. Unlike most of the other companies on the list, the company has substantial debt, which helps explain its low P/E. It's possible several recent acquisitions have excited investors, as the company spent $150mm so far this year.
OSI Systems (OSIS) makes systems and components used in Homeland Security, healthcare, defense and aerospace. The stock has one of the higher P/E ratios, but EPS are supposed to grow 23% in the year ending June 2012. The company also has a strong balance sheet.
PetSmart (PETM) was a real dog for many years, declining from late 2004 into late 2008, but it has been on a tear since then. The company has been repurchasing stock and actually looks somewhat expensive to me.
ProAssurance (PRA) is interesting because earnings have actually been declining yet the stock has rallied. The company provides professional liability insurance as well as other types. This one looks more like a value play, as it trades at just a slight premium to its tangible equity value. There has been some acquisition activity in this segment, and they actually bought a rival late last year as well.
Sapient (SAPE) is the most expensive name on the list as measured by P/E ratio. The company offers services aimed at business, marketing and technology, with rapid historical growth and a projected EPS growth of 38% this year and 35% in 2012 according to First Call. The company has a strong balance sheet, with about $1.50 per share in cash.
Triumph Group (TGI) is involved in several aspects of aerospace, with projected EPS growth for the year ending March 2012 of 21%. Keep in mind, though: the company has a reasonably large amount of debt.
Thermo Fisher (TMO) is a manufacturer and distributor of lab equipment and supplies as well as healthcare equipment. The company has done several acquisitions and is very broadly exposed in terms of end markets.
Veeco Instruments (VECO) makes equipment used to manufacture LEDs, solar panels and data storage devices. The valuation seems low, but could even be construed as cheaper than it appears, as the company has about $15 per share of cash net of debt.
Hopefully I have given you a few ideas to investigate further. In this case, we have looked for stocks near their highs of the past year with some other favorable attributes. These companies in aggregate look inexpensive and technically solid and might break out when the market improves. Remember, screening is a starting point as part of a more thorough investment process.
Regards,
Alan Brochstein
Founder, Invest By Model and AB Analytical Services
TradeKing All-Star Commentator
Disclosure: Alan Brochstein does not currently hold any positions in the securities mentioned above.
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.
Comments
Follow commentsDJ-Trader posted July 07, 2011 (12:43AM)
One of these is ECPG:
Encore Capital Group (ECPG) buys defaulted consumer debt at a deep discount. Sadly, this sounds like a very promising business these days. ECPG's sales and earnings have been and are expected by analysts to continue to grow upwards of 20%.
And as A.B. says, "Sadly, this sounds like a very promising business these days."
Cash America (CSH) operates pawn stores and also offers unsecured consumer lending in stores or over the internet. Among businesses of this type, I actually prefer a competitor of theirs, which also made the list and which I address below.
EZCorp (EZPW), like CSH, operates pawn stores and makes payday and other types of loans to individuals. Their balance sheet looks better to me than that of CSH, and they also are expanding internationally at a more rapid pace. Again, these businesses seem likely to do well in the current economic climate.
These two companies make payday loans and in this economy many people desperately turn to these crooks for loans! Payday lenders calculate their rates based on short-term periods. In reality, the annualized interest for a payday loan is as much as 528% APR! There has been no better time to regulate these loan sharks out of existence to prevent more people from falling into a debt trap as they slip through the cracks.
It's sad that during these hard times with nearly 1 in 4 American children living in poverty, the scavengers that fleece the sinking middle class and poor of our nation are thriving and their stocks are at a high tide!
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