Looking for future winners among the large-cap stocks, I searched for stocks with above average growth prospects. Those stocks would have to show stable financial conditions and generate significant free cash flow. I looked also for companies that are having 5-year dividend growth rate of at least 5% per year.
I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.
The screen's formula requires all stocks to comply with all following demands:
- 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."
- Earnings growth estimates for the next 5 years (per annum) is greater than 12 %.
- Price to free cash flow is less than 14, (many investors prefer using free cash flow instead of net income to measure a company's financial performance, because free cash flow is more difficult to manipulate. Free cash flow is the operating cash flow minus capital expenditure).
- Total debt to equity is less than 0.5.
- 5-year dividend growth rate of at least 5% per year.
I used Portfolio123's powerful free screener to perform the search. After running this screen on September 03, 2012, I obtained as results the 5 following stocks:
Danaher Corp. (DHR)
Danaher, has low debt (total debt to equity is only 0.27) and its price to free cash flow for the trailing 12 months is only 13.84. The average earnings growth estimates for the next 5 years (per annum) is 14.68%. The annual dividend yield is 0.19%.
Danaher Corporation designs, manufactures, and markets professional, medical, industrial, and commercial products and services primarily in North America, Europe, and Asia/Australia. The company's Test & Measurement segment provides electronic measurement instruments; and monitoring management, and optimization tools for communications and enterprise networks and related services, which are used for the development, manufacture, installation, and operation of electronics equipment, and communications networks and services. Danaher Corporation was founded in 1969 and is headquartered in Washington, District of Columbia.
Guess Inc. (GES)
Guess Inc., has almost no debt at all and its price to free cash flow for the trailing 12 months is only 13.18. The average-annual earnings growth estimates for the next 5 years is 12.01%. The annual dividend yield is 3.11%.
Guess?, Inc. designs, markets, distributes, and licenses lifestyle collections of contemporary apparel and accessories for men, women, and children that reflect the American lifestyle and European fashion sensibilities. The company's clothing collection includes jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, knitwear, and intimate apparel. The company was founded in 1981 and is headquartered in Los Angeles, California.
Nu Skin Enterprises Inc. (NUS)
Nu Skin Enterprises, has low debt (total debt to equity is only 0.39) and its price to free cash flow for the trailing 12 months is only 11.79. The average-annual earnings growth estimates for the next 5 years is 14.1%. The annual dividend yield is 1.92%.
Nu Skin Enterprises, Inc. develops and distributes anti-aging personal care products and nutritional supplements worldwide. The company sells its personal care products under the Nu Skin brand; and nutritional supplements under the Pharmanex brand. The company was founded in 1984 and is headquartered in Provo, Utah.
Raymond James Financial Inc. (RJF)
Raymond James, has relatively low debt (long-term debt to equity is 0.45), and its price to free cash flow for the trailing 12 months is only 8.85. The average-annual earnings growth estimates for the next 5 years is quite high, 17%. The annual dividend yield is 1.46%.
Raymond James Financial, Inc., through its subsidiaries, engages in the underwriting, distribution, trading, and brokerage of equity and debt securities in the United States, Canada, and Europe. The company's Private Client Group segment provides securities brokerage services, including the sale of equities, mutual funds, fixed income products, and insurance products to their individual clients; and correspondent clearing services to other broker-dealer firms. Raymond James Financial, Inc. was founded in 1962 and is headquartered in St. Petersburg, Florida.