Are you looking for mid-sized companies that still have room to grow? Looking for undervalued stocks? Do you prefer companies with strong profits? For ideas on how to start your own search, we ran a screen.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share [EPS], and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is 'better' (cheaper) and a higher ratio is 'worse' (expensive) - a PEG ratio of 1 means the company is fairly priced.
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
We first looked for mid-cap stocks. Next, we then screened for businesses that are trading at a discount (P/E<10)(PEG Ratio < 1). Next, we screened for businesses with strong profit margins (1-year operating margin>15%)(ROA [TTM]>10%). We did not screen out any sectors.
Do you think these mid-cap stocks have higher to rise? Use our screened list as a starting point for your own analysis.
American Capital, Ltd. (NASDAQ:ACAS)
American Capital, Ltd. has a Price/Earnings Ratio of 2.85; a Price/Earnings to Growth Ratio of 0.19; Operating Profit Margin of 51.81%; and Return on Assets of 18.88%. The short interest was 1.06% as of 05/06/2012. American Capital, Ltd. is a private equity and venture capital firm specializing in management and employee buyouts, mezzanine, acquisition, recapitalization, middle market, and growth capital investments. The firm seeks to invest in senior debt mezzanine and equity financing for buyouts of private equity firms and direct in private and public companies. It also invests in special situations and in government.
MGM Resorts International (NYSE:MGM)
|Industry:||Resorts & Casinos|
MGM Resorts International has a Price/Earnings Ratio of 2.37; Price/Earnings to Growth Ratio of 0.18; Operating Profit Margin of 47.31%; and Return on Assets of 13.53%. The short interest was 8.84% as of 05/06/2012. MGM Resorts International, through its subsidiaries, owns and operates casino resorts. Its casino resorts offer gaming, hotel, convention, dining, entertainment, retail, and other resort amenities. The company also owns and operates Shadow Creek golf course in North Las Vegas; Fallen Oak golf course in Saucier, Mississippi; and the Primm Valley golf club at the California state line.
United Therapeutics Corporation (NASDAQ:UTHR)
|Industry:||Drug Manufacturers - Other|
United Therapeutics Corporation has a Price/Earnings Ratio of 9.29; Price/Earnings to Growth Ratio of 0.37; Operating Profit Margin of 49.40%; and Return on Assets of 17.62%. The short interest was 6.74% as of 05/06/2012. United Therapeutics Corporation, a biotechnology company, engages in the development and commercialization of therapeutic products for patients with chronic and life-threatening diseases in the United States and internationally. It offers Remodulin, Tyvaso, and Adcirca for the treatment of pulmonary arterial hypertension (NYSE:PAH). The company also develops Oral Treprostinil (UT-15C), a new drug application filed with the United States Food and Drug Administration for the treatment of PAH.
Linn Energy, LLC (LINE)
|Industry:||Independent Oil & Gas|
Linn Energy, LLC has a Price/Earnings Ratio of 7.80; Price/Earnings to Growth Ratio of 0.92; Operating Profit Margin of 55.74%; and Return on Assets of 11.24%. The short interest was 1.04% as of 05/06/2012. Linn Energy, LLC, an independent oil and natural gas company, engages in the acquisition and development of oil and gas properties. The company's properties are primarily located in the Mid-Continent, the Permian Basin, Michigan, California, and the Williston Basin in the United States. As of December 31, 2011, it had proved reserves of 3,370 billion cubic feet equivalent of oil and gas, and natural gas liquids, as well as operated 7,759 gross productive wells.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.