When you are interested in growth opportunities, looking for investments at the large cap level seems like an unlikely place to start. However, when you search specifically for large caps that are slated for growth in the coming year, there are some intriguing options. Especially when these stocks also appear to be trading below perceived market value. If these companies achieve their growth projections, there will be nice gains for the investor. With these ideas in mind, we developed a short list of large caps stocks with EPS growth rates of 25% or higher in the next year that also appear to be trading at a discount. Take a look at the summaries below to start your research.
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number, the more a firm is financing its assets internally through stockholder equity. The higher this metric, is the more the firm is relying on debt to finance its assets.
The Price/Cash Flow ratio is a price-multiple valuation metric that also measures a firm's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint. Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 1-Year Expected EPS Growth Rate is an annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.
We first looked for large cap stocks. Then, we looked for businesses with a low price-multiple premium (forward P/E<10)(P/CFO<10). From here, we looked for companies with projected high growth, measured by 1-year projected EPS growth above 25%. We did not screen out any sectors.
Do you think these large-cap stocks should be trading higher? Use this list as a starting-off point for your own analysis.
1) Suntrust Banks, Inc. (STI)
|Industry||Money Center Banks|
|Forward Price/Earnings Ratio||9.77|
|Price/Cash Flow Ratio||2.37|
|1-Year Projected Earnings Per Share Growth Rate||31.82%|
Suntrust Banks, Inc. operates as the holding company for Suntrust Bank, which provides various financial services in the United States. The company's Retail Banking segment offers consumer deposits, home equity lines, consumer lines, indirect auto, student lending, bank card, and other consumer loan and fee-based products. Its Diversified Commercial Banking segment provides commercial lending, financial risk management, capital raising, commercial card, and other treasury and payment solutions; insurance premium financing; and equipment and lease financing.
2) Morgan Stanley (MS)
|Industry||Investment Brokerage - National|
|Forward Price/Earnings Ratio||7.48|
|Price/Cash Flow Ratio||2.33|
|1-Year Projected Earnings Per Share Growth Rate||116.67%|
Morgan Stanley, a financial holding company, provides various financial products and services to corporations, governments, financial institutions, and individuals worldwide. The company's Institutional Securities segment offers financial advisory services on mergers and acquisitions, divestitures, joint ventures, corporate restructurings, recapitalizations, spin-offs, exchange offers, leveraged buyouts, takeover defenses, and shareholder relations, as well as capital raising and corporate lending services.
This segment also engages in investment activities; and sales, trading, financing, and market-making activities, including equity trading, interest rates, credit and currencies, and commodities, as well as financing services, such as prime brokerage, consolidated clearance, settlement, custody, financing, and portfolio reporting services.
3) Bank of America Corporation (BAC)
|Industry||Regional - Mid-Atlantic Banks|
|Forward Price/Earnings Ratio||8.60|
|Price/Cash Flow Ratio||0.70|
|1-Year Projected Earnings Per Share Growth Rate||66.10%|
Bank of America Corporation, through its subsidiaries, provides various banking and financial products and services to individual consumers, small-and middle-market businesses, institutional investors, corporations, and governments in the United States and internationally. The company's Deposits segment provides traditional savings accounts, money market savings accounts, CDs and IRAs, and noninterest-and interest-bearing checking accounts, as well as investment accounts and products. Its Card Services segment issues credit and debit cards in the United States providing a range of lending products, including co-branded and affinity products.
4) Sony Corporation (SNE)
|Forward Price/Earnings Ratio||7.11|
|Price/Cash Flow Ratio||0.71|
|1-Year Projected Earnings Per Share Growth Rate||409.09%|
Sony Corporation designs, develops, manufactures, and sells electronic equipment, instruments, and devices for consumer, professional, and industrial markets worldwide. It offers consumer products and devices, such as televisions; Blu-ray disc players/recorders, home theaters, home audio systems, and DVD-video players; compact digital, home-use video, and interchangeable single-lens cameras; and personal computers and memory-based portable audio devices. The company also develops, produces, markets, and distributes PlayStation3, PlayStation Vita, PlayStation Portable, and PlayStation 2 games hardware and related software.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on August 19, 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.