Skip to main content

Not just GARP -- new Growth Stock screen captures some real winners

I have been playing with a new stock screen lately. The objective is to identify reasonably valued stocks with good growth potential. I look for stocks that have solid earnings, high Return-on-Equity, good earnings growth expectations based on PEG and a low Debt-to-Equity ratio.

These characteristics are reminiscent of GARP, growth at a reasonable price. If you are not familiar with it, the GARP strategy is a combination of both value and growth investing: it looks for companies that are somewhat undervalued and that have solid sustainable growth potential.

To get into the details, the screen looks for stocks with PEG less than 1.2, ROE greater than 25, positive cash flow over the trailing four quarters and a very low Debt-to-Equity ratio. A further requirement is that the stock's performance has been no worse than 10% below that of the S&P 500. I put the result on Alert HQ Premium as the Profitable Growth Stock Report. At this point, I'm running the report on a weekly basis.

What's interesting about the report this week is that we have 49 stocks on the report and 42 of them (85%) have managed to beat the S&P 500 over the last 52 weeks. That's not bad for a year when the S&P 500 returned nearly 14%.

How to use this report --

First of all, it seems like this screen does identify stocks with strong performance.

The next question, however, becomes where to focus your attention. Let's break the list down into three segments:
  • The stocks at the top of the list are, at this point, rip roaring momentum stocks and from a relative strength/overbought/mean reversion point of view it would seem that it is late to be buying these stocks. Nevertheless, many have very strong bullish trends and trend-followers might want to take note.
  • The stocks at the bottom of the list have underperformed the S&P 500. That's not the hallmark of a growth stock.
  • The stocks in the middle of the list seem to comprise the sweet spot. Growing strongly but no yet so horribly over-priced. There are a slew of quite interesting stocks that have out-performed the S&P 500 by less than 60% that still seem attractive given their growth prospects. Some, like Lam Research (LRCX), are currently surging while some, like Dollar Tree (DLTR) are in the process of pulling back and becoming potentially more attractive to the value oriented investor. Also included in this segment is Apple (AAPL) which remains a quintessential growth stock.
So if you are looking for growth stocks I encourage you to browse the Profitable Growth Stock Report and look into a few of the stocks on the list. If you have suggestions for improving the criteria for this screen, feedback is always welcome.

Disclosure: no positions in any stocks mentioned in this article though I do have a small position in CBPO which happens to be in the middle of this week's list
Labels:

Comments

Post a Comment

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation ...
4 comments
Read more

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.
Post a Comment
Read more

Time to be conservative with your 401K

Most of the posts I and other financial bloggers write are typically focused on individual stocks or ETFs and managing active portfolios. For those folks who are more conservative investors, those whose main investment vehicle is a 401K, for example, the techniques for portfolio management might be a little different. The news of stock markets falling and pundits predicting recession is disconcerting to professional investors as well as to those of us who are watching our balances in an IRA or 401K sag. What approach should the average 401K investor take? Let's assume that the investor is contributing on a regular basis to one of these retirement accounts. There are two questions that the investor needs to ask: 1. Should I stop putting the regular contribution into stocks? My feeling is that investors making regular contributions are being handed a present by the markets. Every week the market goes down, these investors are lowering their average cost. When markets reco...
7 comments
Read more