6 Potential Growth Stocks Near Their Highs

Alan Brochstein Screens for Potential Growth Stocks

Here we are with fewer than two months to go, and stocks, as measured by the S&P 500, have gone essentially nowhere this year as the market has had to contend with fears of slowing 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, with growth 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 lost almost 2%.  Similarly, for the S&P 500 Small-Cap, the “growth” component had gained 2.5%, while the “value” component had lost 4%.

In a slowing economy, investors tend to crowd into companies that can grow their earnings, avoiding cyclicals that can struggle in this type of environment.  While the overall market has been flat this year and is down 8% or so from the highs set in late April, many growth stocks have powered to 52-week or even all-time highs during this consolidation.  With this in mind, I wanted to screen for growth stocks that are performing well to see if I might find some new ideas.

Here are the constraints I used:

·       Market Cap:  $500mm-$4bln

·       Within 4% of 52-week High

·       One-year Sales Growth > 15%

·       2012 Projected EPS Growth > 20%

·       50dma > 200dma

·       Forward PE > 15

The goal of the search, then, is to find relatively smaller companies near their 52-week highs that are growing relatively rapidly with an expectation that they may possibly grow strongly next year.  I wanted to restrict the candidates to those whose 50dma is above the 200dma in order to gauge technical strength.  Finally, by limiting the PE to 15 or higher, we receive some confirmation that the market has some confidence in the name given the premium valuation.

Here is what we get:

Please remember that this screen is just an illustration for identifying stocks to research further.  You should do a thorough investigation of any stock before deciding to invest.

Our screen resulted in four different economic sectors with representation. I recently began following Sourcefire (FIRE) more closely, but I am not expert in any of these names.  What follows are my initial observations.

Rex Energy (REXX) is primarily a Marcellus Shale play, where there has been a lot of merger activity this year.  Almost all of its YTD gain has come in the past few weeks.  Insiders own an impressive 21% of the company.

HMS Holdings (HMSY) just broke away from a tight consolidation to an all-time high.  The company helps Medicare, Medicaid and other government healthcare programs detect fraud.  Now, that sounds like a growth business!

Advisory Board (ABCO) publishes research and analysis for the healthcare and educational industries on a subscription basis to over 3000 clients.  The stock recently moved to an all-time high.

Sourcefire (FIRE) is a cyber-security firm that provides intrusion detection and prevention with hardware and software solutions.  The management team seems very strong here, with deep industry experience.  There have been concerns over high exposure to the federal government, but a strong quarter pushed it recently to the top of a tight range over the past year.

IAC/Interactive (IACI) is the “cheapest” stock in terms of PE ratio and looks more like “growth at a reasonable price” compared to the other names, which are more “aggressive growth”.  The company is controlled by Barry Diller and operates more than 50 different internet brands (ask.com, match.com).

I wrote about Opnet Technologies (OPNT) earlier this year, highlighting its large insider ownership in an article intended to share some ideas about how to find attractive Small-Caps.  The software company trades near an all-time high.

So, hopefully I have given 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 investment process.

Regards,

Alan Brochstein
Founder, Invest By Model and AB Analytical Services
TradeKing All-Star Commentator

Disclosure:  No positions in any companies mentioned

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.

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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.