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

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street profess

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing wh

Interactive Ads - Google one-ups Yahoo again

Google's ( GOOG ) press release describing the expansion of a beta program for what are being called Gadget Ads has again shown that Google is unparalleled at melding technology and advertising to benefit its bottom line. Gadget Ads are mini-web pages or "widgets" that can be embedded within publisher pages. I have written in the past on Yahoo's ( YHOO ) Smart Ads and how, by more precisely targeting site users and adjusting ad content accordingly, they provide a much desired evolution of the banner or display ad format. Though Smart Ads and Gadget Ads are not really the same, I think it is fair to say that Google has seen the challenge of Smart Ads and has chosen to leapfrog Yahoo by rolling out its own update to the display ad format. The evolution of the Gadget Ad -- One of the trends on the Internet over the last year or so involves software developers creating "widgets" which can be hosted within web pages and blogs. Widgets can be pretty much any