The days of big families aren't over. Putting growth investing and value investing criteria together produces 45 offspring -- stocks that look interesting for both types of investors.
A Thomson Reuters StarMine analysis searched for companies with earnings and revenue growth rates 50% above current market rates, but also with forward 12-month P/E ratios at or below the S&P 500 long-term average of 15.
In a slowly growing U.S. and global economy, market leadership has come from the more conservative, lower growth sectors such as consumer staples and health care. So does growth investing make sense today?
For 45 U.S. companies with market caps over $1 billion, the answer is yes. Not only do these companies offer superior growth, they come at an average forward 12-month P/E of 12.4, compared to that long-term S&P 500 average of 15. It's perhaps the perfect marriage between growth investing and value investing, and each side may well feel they are gaining an additional edge in the process. Here's the screening method:
With all these criteria met, view the list in alphabetical order by sector, that emerged.
- Consumer discretionary names include DirecTV (DTV), PulteGroup (PHM), GNC Holdings (GNC) and MDC Holdings (MDCO).
- Energy is the sector most represented on the list, including the likes of big names like Halliburton (HAL), Devon Energy (DVN) and Transocean (RIG), but also smaller companies such as Tidewater (TDW) and helicopter services company Bristow Group (BRS).
- Among the Industrials group are Chicago Bridge & Iron (CBI), Terex (TEX), capital goods maker Manitowoc (MTW) and Spirit Airlines (SAVE).
- Information Technology is represented by five companies, including LAM Research (LRCX), IAC/Interactive Corp (IAC) and communication equipment maker Finisar (FNSR).
- The materials sector sports five names too, including chemicals producers FMC Corp (FMC) and Cytec Industries (CYT), specialty metals firm Carpenter Technology Corp (CRS) and adhesives, sealants and specialty chemicals H Fuller (FUL).
Market Cap (MM $US)
Forward P/E (SmartEstimate) F12M
Gnc Holdings Inc
Harman Intl Inds Inc
American Axle & Mfg Holdings
Devon Energy Corp
Continental Resources Inc/Ok
Chesapeake Energy Corp
Weatherford International Ltd
Diamond Offshore Drilling
Rowan Cos Inc
Oasis Petroleum Inc
Atwood Oceanics Incorporated
Rosetta Resources Inc
Bristow Group Inc
Carrizo Oil And Gas Incorporated
Blackstone Group Lp
Fortress Investment Group Llc
Selective Ins. Group Inc.
Jazz Pharmaceuticals Plc
Health Net Inc
Hertz Global Holdings Inc
Chicago Bridge & Iron
Spirit Airlines Inc
JetBlue Airway Corp
Titan International Inc
Lam Research Corp
Arris Group Inc
Web.com Group Inc
Cytec Industries Inc.
Carpenter Technology Corp
HB Fuller Co
Coeur D Alene Mines Corp Id
Source: Thomson Reuters StarMine
Compared to the sector weights of the S&P 500 index, the 45 names that made the list are heavily tilted toward consumer discretionary at a 52% portfolio weight -- 40 percentage points above the S&P weight for that sector in the diagram below. Likewise, the energy sector's 26% weight is 16 percentage points higher than the S&P 500's weighting. Note at the bottom of the table that there are no consumer staples stocks at all in the portfolio, and only three financials names (see above list), although they only make up about 1% of the total market weight of that list.
The consumer discretionary and energy sectors carry an identical average 12-month forward P/E ratio of 12.6. The cheapest sector by that measure is health care at 10.8, though it contains only two companies: JAZZ Pharmaceuticals (JAZZ) and Health Net Inc. (HNT), with 8.7 and 12.9, respectively.
Other Growth/Value Characteristics
- The best year-to-date price performance (through May 16, 2013) comes from the financials sector, where three stocks are up an average of 50%. The worst performer is materials with a -5% average price return, due mostly to the 45% drop in Coeur Mining (CDE -- formerly Coeur D'Alene Mines). The other four stocks in the materials sector only managed a 4% price increase over the same period.
- Small and midcap names make up the majority of the list, with large companies making up only 24% of the list (11 companies, including $100 billion in market cap Schlumberger (SLB) as the list's heavyweight. That's 100 times larger than the smallest member, Web.com Group (WWWW), at just over $1 billion. The median market cap is found at $3.5 billion with Atwood Oceanics Industries (ATW).
- Compared to StarMine's ranking method according to Relative Valuation, 29 firms (62% of the list) rank in the top half of all U.S. companies, with top 10% honors for Hertz Global Holdings Inc (HTZ) and JetBlue Airway Group (JBLU). The six popular ratios considered here use a rolling 24-month (trailing 12 and forward 12) time frame, including enterprise value/sales, enterprise value/EBITDA, P/E, price/cash flow, price/book and dividend (or buyback) yield.
If equity investing is becoming more of a stock picking contest, then the list of stocks above should find appeal for both growth and value investors -- but significant declines in forward valuations and/or earnings might make that family a lot smaller.