Growth Hunters: 4 Stocks for Your Consideration
Alan Brochstein screens for stocks showing potential for growth
It’s long been my belief that times like these - just a few years out of recession - reward those who focus on growth stocks rather than value. That said, I have to admit: I may’ve remained a bit too focused lately on valuation, maybe even limiting myself in terms of finding potential opportunities.
If the recent market correction ends soon, now seems like the time to look for some stocks that have held up well (and have institutional support) and that are exhibiting strong sales and earnings growth. In setting up a screen, I chose the following parameters:
- Market Cap: > $1 billion
- Sales growth (past 4 quarters): > 25%
- Earnings growth (past 4 quarters): > 50%
- Return on Capital > 14%
- Net Profit Margin > 14%
- Net Debt to Capital < 20%
- Forward P/E > 15 (betting on stocks that the market likes)
- Earnings Estimates for 2011 and 2012 (no negative revisions over past 12 weeks)
- 2011 EPS Growth > 20%
- QTD Price Return > S&P 500 (-4%)
- Within 20% of 52-week high
Here is what we get:
[click on the image above to enlarge it]
As a reminder, remember that these stocks should not be considered as recommendations to buy or sell, simply suggestions for further research. You should always do your own due diligence before investing in any stock.
Three of the four stocks come from the technology sector, with the other, Graco (GGG), from the industrial sector. While Graco has pulled back only slightly, the technology names have retreated a bit more sharply from their 52-week highs. Note that the company known as II-VI (IIVI), which is pronounced “Two-six”, and GGG made not only 52-week highs but also all-time highs during this quarter, while Agilent (A) has hit its high for the past decade.
I don’t follow most of these stocks closely, but I can comment briefly on II-VI, which I added just last week to my Top 20 Model Portfolio. The company specializes in materials, primarily infrared optics and near-infrared optics but also other materials used in a variety of industries and applications, including industrial, military, telecom and healthcare among others. I have followed the company closely for years and believe that they are well managed. I was particularly impressed by their acquisition of a Chinese company more than a year ago as well as their walking away from a hostile bid for another publicly-traded company later in 2010, which to my mind showed discipline. They also strike me as highly innovative. One of the technologies they enable is gesture recognition, which is used in the Microsoft “Kinect” game controller.
As far as the other companies, just to give you a head start, VMWare (VMW) was spun out of EMC and is focused on data storage. GGG is focused on fluid handling and caters to construction, manufacturing, processing and maintenance applications in a variety of industries. Finally, Agilent provides test and measurement capabilities for electronics, chemical analysis and life sciences.
So, hopefully I have given you a few ideas to ponder. For all 4 of these stocks, these companies have been performing well to date, and the market's response suggests this track record could continue. If you believe future success is often a function of recent past success, you may find that these stocks fit that bill nicely.
Remember, screening is only a first step. Before investing, you should do your own investigation to identify risks and potential opportunities.
Regards,
Alan Brochstein
Founder, Invest By Model and AB Analytical Services
TradeKing All-Star Commentator
Disclosure: Alan Brochstein is currently long IIVI in his Invest By Model portfolio.
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.
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