I've always been partial to what I call "value growth" stocks - those that are cheaply priced but still have growing revenues and healthy profit margins (those factors, along with debt & cash, are some of the most important fundamental ones in my 20 years of investing experience). We just ran a new scan for what could be called "growth value" stocks - emphasis on the growth/profits portion while giving more leeway on the valuation.
Using data from finviz.com, (be sure to check the financial numbers on these companies on your own before any investing or trading in them) we ran a screen with numerous factors to narrow down the list of stocks:
-Optionable & Shortable
-Market Capitalization Over $300 Million
-Average Daily Volume Over 500k
-Price/Earnings (PE) Ratio Under 30
-Sales Growth Quarter-Over-Quarter (Q/Q) Over 25%
-Return On Assets (ROA) Over 20%
-Return On Equity (ROE) Over 20%
-Return On Investment (ROI) Over 20%
-Gross Profit Margin Over 20%
-Operating Margin Over 20%
-Net Profit Margin Over 20%
This narrowed down the universe to 16 stocks, some of which are very widely known and traded, and others less so. Take a look at the table below:
You can see that 14 of these 16 names are up year-to-date (YTD), with 11 of the 16 up over 10%. These are the types of names that will likely outperform during market upmoves. The current P/E ratios range from 4 to 28 according to this data (this number is something that may require further research due to the idiosyncrasies of an individual quarter). Remember that these are companies showing over 25% growth in quarterly sales, with strong profit margins to turn those revenues into profits - yet the current P/E ratios are in the "reasonable" range below 30.
Big name tech stocks like Apple (AAPL), Priceline (PCLN) and NetEase (NTES) are among the list, as well as other techs and biotechs including BroadSoft (BSFT), IPG Photonics (IPGP), Jazz Pharmaceuticals (JAZZ), Spectrum Pharmaceuticals (SPPI) and Spreadtrum Communications (SPRD) -- but also (and perhaps more surprisingly), there are many categorized under the "Basic Materials" sector.
Nearly half of the list is among this materials group, with Industrial Metals, Gold, Silver, Oil/Gas, and Copper among those represented. ETFs that represent those materials sectors include (XLB) (GLD) (SLV) (XME) (XLE) (USO) and (JJN) among others.
Let's do a quick thumbnail on the materials stocks that turned up in the screen, leaving out Leucadia National (LUK) which does have oil/gas operations but is in many diversified businesses:
BHP Billiton (BHP) - Australian diversified mining giant, next interim earnings report due February 8. Very strong reported profit and return margins. Dividend over 2%. Very big float of 2.66 billion shares.
Compania Mina Buenaventura (BVN) - Peruvian mining firm, next earnings release on February 28. Also has strong reported profit and return margins. Dividend close to 1%.
Great Panther Silver (GPL) - Canadian based miner, this is a fairly small cap name and low priced stock that barely made it through our screen - always be a bit more cautious and thorough when dealing with stocks below $5/share and also those with smaller market caps. Next reporting due mid-February.
Gulfport Energy (GPOR) - U.S. based oil & gas exploration. Strong profit and return margins, no dividend. Next reporting due early-February.
Pioneer Southwest Energy (PSE) - U.S. based oil & gas assets. Limited Partnership founded in 2007, subsidiary of Pioneer Natural Resources (PXD). Dividend over 7%, but very high dividend yield indicates research needed on the safety of the stream. Very high profit and return margins. Next earnings due February 6.
Southern Copper Corp (SCCO) - U.S. based miner. Very strong profit and return margins. Dividend yield was over 6%, but the company just announced its latest dividend will be around 0.19 per share (plus a small stock dividend) vs 0.70 per share in previous quarter. This lowered the yield greatly and caused a selloff in the stock. This is an example of the risk of playing a stock purely for a dividend stream that may or may not be a safe consistent one. Earnings due this week.
Silvercorp Metals (SVM) - Canada based miner. A bit smaller cap and lower priced stock below $10/share. Good profit and return margins, dividend around 1%. Next earnings report due February 9.
All of these names bar PSE are outperforming the market in 2012, as we've seen a rebound in the prices of Gold, Silver, Copper, etc. However, over 12 months only GPOR & GPL are outperforming the S&P 500 (SPY) - SVM & SCCO being the biggest losers. See the performance tables below:
GPL - Yellow
SVM - Purple
SCCO - Aqua
GPOR - Red
BHP - Gray
BVN - Green
SPY - White
PSE - Orange
Bottom line, our screen came up with some interesting names. We were looking for companies with growing revenues & strong profit margins here, but also reasonably priced. The number of basic materials names on the list certainly stands out - it shows the strong profit margins among many names in that sector, but also incorporates the decline in metals prices. These companies should be well positioned to benefit and outperform if the 2012 rally in metals has some legs. The technology and biotech/pharma names on the list may well include some very big standouts as well, but that would be in a different article …