Screener Picks, Part II: Three Mid-cap Growth Stocks
In Part One, I showed the results that I observed when I ran some parameters through Yahoo Stock Screener. That search was aimed at finding large, reasonably priced stocks that were likely to hold up well during the turbulent times that are seeing now.
This search is a bit different. While Small-cap (and many Mid-cap) stocks have been badly beaten up in this downturn, I wanted to find Smaller companies that have displayed a proven track record of growing their earnings, were still reasonably priced and had good growth prospects for the next few years. These are the stocks that are likely to be early contributors when investors finally rotate money back into this "sector" of the market. As a warning, it is likely a bit too early to take a full position in these stocks now, but taking a partial position wouldn't be a bad idea.
FYI – It is funny (and coincidental) that the Motley Fool ran an article on two of the stocks on the same day that I wrote this…
Search Criteria:
1) Market Capitalization of between $500M and $5B - This is likely a good "Sweet-Spot", as these stocks are large enough to be established, but are likely to have room for growth
2) PEG Ratio of 1.0 or less - Shows that the stocks are reasonably priced, based on the expected growth of the company
3) Trading Volume exceeds 1M shares per day - Trying to find companies that are liquid enough that even the biggest Retail investors can easily get in and out of a position
4) Analyst Estimated Growth rate of over 20% for the next 5 Years -Shows that Analysts believe that the company should be able to more than double their earnings over the next 5 years
5) Earnings growth over the past 5 years has exceeded 25% annually - Shows that the company has a solid history of earnings growth
6) Estimated Forward Earnings Ratio of 20 or less - Shows room for Possible Multiple expansion, in addition to the Earnings growth
7) Return on Equity is at least 20% - Shows that the company is able to produce good results based on their existing assets, likely reducing the amount of Capital that they may need to borrow to grow their business
8) Free Cash flow of at least $50M Annually - Shows that the company is able to produce positive cash flow today
Results:
1) Priceline.com (PCLN)
- Interesting to see a company that makes its living selling Travel and Accommodations make this list, in a time of potential recession and inflated Fuel prices hurting Airlines and reducing long driving trips.
- However, the market that Priceline.com plays to (namely price-conscious consumer and small business) plays well to the Demographics of many travelers (namely the large Baby-Boomer Group, and their children, often known as the "Echo" Generation). These groups are more likely to look for bargains (Boomers, as they have the flexibility to travel on shorter notice, and "Echo" as they don't have the financial means to pay full price for travel.)
- The Analysts have 1-yr Price target of $133. This seems achievable, considering the 52 week high is more than $10 higher than that. This would be greater than a 30% upside.
2) Manitowoc (MTW)
- Just because you may have a hard time pronouncing this company's name, this isn't a reason to avoid it.
- They are engaged in a variety of businesses, namely Heavy Machinery (Cranes), Food Service Equipment (Ice-makers / Refrigerators) and Vessels (Commercial and Military)
- With a huge RoE that is north of 30%, low debt ratios and trading at less than 8 times this years earnings, the threat of a downturn in the economy seems to be more than priced into this stock.
- This stock is down more than 50% from its 52 week high. Analysts are calling for it to return to the upper $30s, giving it a 50% upside from here.
3) Earthlink (ELNK)
- Earthlink, as many of you know, is an Internet Service Provider [ISP] for both the Consumer and Business Markets.
- Like many ISPs and Cable companies, they have ventured into the Home Phone market with their VoIP offering.
- The company generates over $100M in Free Cash Flow, which is good for a company with a Market Cap of less than $1B. Its debt is a bit higher than I would have liked to see, but nothing that would scare me away
- Analysts seem to be pretty high on this stock, as they are expecting growth of 30% annually over the next few years. Based on its low P/E Ratio (trading at less than 6 times 2008 Estimated Earnings), it would only have to grow at 1/3 of that rate to be considered a bargain.
- The Consensus 1-yr target is about $11.50, which would be a 30% upside from here.
Part Three will go over Ultra-large Cap stocks with good earnings growth in the past few years, strong projected earnings for the next few years, and trading at a reasonable multiple.
Disclosure: None
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This article has 3 comments:
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BryanSD
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2 Comments
Aug 19 09:00 PM-
Larry Bellehumeur
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67 Comments
Aug 20 11:33 AMCheers
Larry
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frankfarb
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2 Comments
My Website
Oct 07 12:10 PMLast year a very senior executive inside Enodis, in an aside, during a casual conversation, remarked that replacing obselete equipment accounts annually accounts for approximately 80% (! that's not a typo) of their sales.
That's why I bought MTC today. It's a no brainer assuming the world doesn't fall apart - and if it does we'll all be eating Big Macs!!