In order to find large-cap stocks with a better chance to outperform the market, I looked for stocks with above average growth prospect. Those stocks would have to show stable financial conditions and generate significant free cash flow, as well as positive analyst recommendations. However, in order to find the proper moment for an opening position, a technical analysis with a momentum indicator can be of great assistance for investors.
I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a base for further research.
The screen's formula, that will be called LC-11, requires all stocks to comply with all following demands:
1. The stock is included in the Russell 1000 index. Russell Investment explanation:
The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market. The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected.
2. Earnings growth estimates next 5 years (per annum) is greater than 10 %.
3. Price to free cash flow is less than 20.
4. Total debt to equity is less than 0.5.
5. Average analyst recommendations are bullish (less than 2)
6. 10-day moving average is over 20-day moving average, and the cross happened 5 days or less prior to the start of the screen (Short term momentum indicator).
We used Portfolio123's powerful free screener to perform the search. After running this screen on August 27, 2012, we obtained as results the 3 following stocks:
|Company||Symbol||Last price||Market Cap ($millions)||Trailing P/E||Forward P/E||PEG Ratio|
|CVS Caremark Corporation||CVS||45.56||57,960||16.10||12.05||1.27|
Activision Blizzard, Inc. (ATVI)
Activision Blizzard has no debt at all and its price to free cash flow for the trailing 12 months is only 12.3. The company is also paying a dividend, the annual yield is 1.54% which makes the stock quite attractive.
Activision Blizzard, Inc. is a worldwide online, PC, console, handheld and mobile game publisher with leading market positions across every major category of the rapidly growing interactive entertainment software industry. Activision Blizzard's portfolio includes best-selling video games such as Call of Duty® as well as Spider-Man™, X-Men™, James Bond™ and TRANSFORMERS™, leading franchises such as Spyro™ and Blizzard Entertainment's® StarCraft®, Diablo®, and Warcraft® franchises including the global #1 subscription-based massively multi-player online role-playing game, World of Warcraft®. Activision Blizzard maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, Norway, Denmark, the Netherlands, Australia, India, China, South Korea and the region of Taiwan. Activision Blizzard, Inc. is headquartered in Santa Monica, California. Activision Blizzard, Inc. is a subsidiary of Vivendi S.A.
CVS Caremark Corporation (CVS)
CVS Caremark has low debt, its total debt to equity is only 0.25 and its price to free cash flow for the trailing 12 months is only 14.2. The company is also paying a dividend, the annual last yield is 1.44% and its earnings growth estimates for the next 5 years is 12.7%, quite impressive fundamental data.
CVS Caremark Corporation provides pharmacy health care services in the United States. Its Pharmacy Services segment offers pharmacy benefit management services, including plan design and administration, formulary management, discounted drug purchase arrangements, Medicare Part D services, mail order and specialty pharmacy services, retail pharmacy network management services, prescription management systems, clinical services, disease management services, and pharmacogenomic. CVS Caremark Corporation was founded in 1892 and is headquartered in Woonsocket, Rhode Island.
Unitedhealth Group, Inc. (UNH)
Unitedhealth has relatively low debt, its long term debt to equity is 0.38 and its price to free cash flow for the trailing 12 months is only 6.58. The company is also paying a dividend, the annual yield is 1.56% which makes the stock quite attractive.
UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States. The company's UnitedHealthcare segment offers consumer-oriented health benefit plans and services to national employers, public sector employers, mid-sized employers, small businesses, and individuals; health and well-being services to individuals aged 50 and older addressing their needs for preventive and acute health care services; health plans and care programs to beneficiaries of acute and long-term care Medicaid plans; and specialty benefits, such as dental, vision, life, and disability products. The company was founded in 1974 and is based in Minnetonka, Minnesota.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.