When thinking about writing this article on searching for companies that could be the next Apple (AAPL), I had to answer one question: What makes Apple stand out Fundamentally, Financially and Performance wise? Below is my opinion of what makes Apple stand out fundamentally, financially and performance wise:
- High EPS Growth
- High Margins
- "Cheap" based on the PEG Ratio
- Low Debt
- Positive returns YTD when the market has been strong.
- Positive returns Over the Past year even though the market has had wild swings and a major correction in August 2011
Below are the screener criteria I used to search for the companies, and since Apple is a technology company, I only included stocks from the technology sector as criteria #1 below shows. To get my base list, I used the Finviz.com Screener Criteria to get only technology companies that are profitable and have liquidity, as well as the other criteria below these four:
- Sector: Technology
- P/E: Profitable >0
- Forward PE: Profitable >0
- Average Volume: Greater than 100K
After the above four criteria were used, there were 409 companies that met those criteria, so then I used the following screener criteria to trim the list down further. The criteria I will be listing below will nearly meet or exceed that of Apple, and cover the above "six things" that make Apple stand out fundamentally, financially, and performance wise. An example of how I set each screen criteria: Apple has a profit margin of 25.80%, so I set the screener criteria to include only stocks with greater than 20% profit margin.
- EPS Growth this year: Over +30%
- EPS Growth next year: Over +10%
- Gross Margin: Over 40%
- Profit Margin: Over 20%
- Operating Margin: Over 30%
- PEG ratio: Under 2
- Debt/Equity Ratio: Under .50
- Performance YTD: Up
- Performance Year: Up
- Forward PE is Less than Current P/E ratio [This is not a criteria that can be screen but done visually]
After I entered the above criteria in the screener, my list was down to four stocks. I will list them below with a short business Summary from Yahoo Finance, and also include below a table showing how the four companies compare to Apple.
Baidu, Inc. provides Internet search services. The company offers a Chinese language search platform on its Website, Baidu.com; and a Japanese language search platform on its Website, Baidu.jp.
F5 Networks, Inc. provides application delivery networking technology that optimizes the delivery of network-based applications, and the security, performance, and availability of servers, data storage devices, and other network resources in the Americas, EMEA, Japan, and the Asia Pacific.
NetEase, Inc., an Internet technology company, engages in the development of applications, services, and other technologies for the Internet in China. It provides online game services to Internet users through in-house development or licensing of multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia II, and Datang, as well as the licensed games, such as Blizzard Entertainments World of Warcraft and StarCraft II.
Taiwan Semiconductor Manufacturing Company Limited engages in the computer-aided designing, manufacturing, packaging, testing, and selling integrated circuits and other semiconductor devices; and manufacturing masks.
EPS Growth this year
EPS Growth next year
Internet Info. Provider
F5 Networks Inc
Internet Software and Services
The four companies that made the final list all come from different industries. But there were some things that were similar between the stocks, for instance BIDU, FFIV, and NTES all have businesses that involve either the internet or data. Three of the four companies are foreign companies, with BIDU, and NTES being from China, and TSM being from Taiwan, leaving FFIV as the sole US company that made the list. The fact that three of the companies are based in Asia, gives me a clear signal as to where future growth in the technology sector will be.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.