Seeking Alpha
, Portfolio123 (2,303 clicks)
Long only, value, research analyst, dividend investing
Profile| Send Message|
( followers)  

One way to find stocks with a better chance to outperform the market is to look for a certain type of stocks with high growth prospects. Those stocks would have to show stable financial conditions and generate strong free cash flow, but cannot be too expensive at the moment.

I have elaborated a screening method, which shows stock candidates following these lines. I looked also for companies where the average analyst's recommendation is buy or better. 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:

  1. The stock is included in the Russell 3000 index. Russell Investment explanation: "The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected."
  2. Earnings growth estimates for the next 5 years (per annum) is greater than 15%.
  3. Price to free cash flow is less than 10, (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).
  4. Total long-term debt to equity is less than 0.1.
  5. Average analyst recommendations are bullish (less than 2).

I used Portfolio123's powerful free screener to perform the search. After running this screen on September 14, 2012, I obtained as results the 4 following stocks:

Coeur d'Alene Mines Corporation (NYSE:CDE)

Coeur d'Alene has very low debt (total debt to equity is only 0.16) and its price to free cash flow for the trailing 12 months is very low 9.36. The average annual earnings growth for the next 5 years (per annum) is very high 50%. A comprehensive explanation about the company's growth potential can be found in my article here. CDE stock seems to be a good investment right now.

Business description from Portfolio123 (see here):

Coeur d'Alene Mines Corporation, together with its subsidiaries, engages in the ownership, operation, exploration, and development of silver and gold mining properties primarily located in the United States, Mexico, Bolivia, Argentina, and Australia. Its properties include the San Bartolome silver mine in Bolivia; the Palmarejo silver-gold mine in Mexico; the Kensington gold mine in Alaska; and the Rochester silver-gold mine in Nevada. The company owns and operates the Martha silver-gold mine in Argentina, as well as owns a non-operating interest in a silver-base metal mine in Australia. Coeur d'Alene Mines Corporation was founded in 1928 and is based in Coeur d'Alene, Idaho.

Chart: finviz.com

Pericom Semiconductor Corp. (NASDAQ:PSEM)

Pericom Semiconductor has very low debt (total debt to equity is only 0.01) and its price to free cash flow for the trailing 12 months is only 8.75. The average annual earnings growth estimates for the next 5 years is 15%. Among the 4 analysts covering the stock, 3 rate strong buy and 1 rates buy. As Pericom has nearly completed the repurchase of shares pursuant to the 2008 authorization, the Board of Directors has authorized another repurchase program for up to an additional $25 million of shares of their common stock. Shares may be repurchased from time to time in the open market or through private transactions, at the discretion of Pericom management. All these factors make the stock quite attractive.

Business description from Portfolio123 (see here):

Pericom Semiconductor Corporation designs, develops, and markets high performance digital, analog, and mixed-signal integrated circuits (NYSE:ICS); and frequency control products (FCPs) used in electronic systems worldwide. The company's products are used for transferring, routing, and timing digital and analog signals within and between computer, networking, datacom, and telecom systems. The company was founded in 1990 and is headquartered in San Jose, California.

Chart: finviz.com

Standard Motor Products Inc. (NYSE:SMP)

Standard Motor has relatively low debt (total debt to equity is 0.34) and its price to free cash flow for the trailing 12 months is only 7.8. The average annual earnings growth estimates for the next 5 years is very high 21.3%. Among the 4 analysts covering the stock, 3 rate strong buy, and only 1 rates hold. All these factors make the stock quite attractive.

Business description from Portfolio123 (see here):

Standard Motor Products, Inc. manufactures and distributes replacement parts for motor vehicles in the automotive aftermarket industry. The company's Engine Management segment manufactures and sells engine management replacement parts, including electronic ignition control modules, fuel injectors, ignition wires, voltage regulators, coils, switches, emission sensors, EGR valves, distributor caps and rotors, and other engine management components primarily under the Standard, BWD, Intermotor, OEM, TechSmart, and GP Sorensen brand names. Standard Motor Products, Inc. was founded in 1919 and is headquartered in Long Island City, New York.

Chart: finviz.com

Trex Co. Inc. (NYSE:TREX)

Trex has no long-term debt at all and its price to free cash flow for the trailing 12 months is only 9.22. The average annual earnings growth estimates for the next 5 years is very high 32.2%. Among the 6 analysts covering the stock, 5 rate strong buy, and only 1 rates hold. For the third quarter of 2012, the company expects sales demand to remain strong with net sales totaling approximately $70 million. TREX stock seems to be a good investment right now.

Business description from Portfolio123 (see here):

Trex Company, Inc. manufactures and distributes wood/plastic composite products, and related accessories primarily for the residential and commercial decking and railing applications in the United States. The company offers decking products, including Trex Transcend and Trex Enhance protective shells for protection against fading, staining, and scratching; Trex Accents that provides a smooth surface on one side and subtle wood grain on the other; Trex Escapes, a cellular PVC deck board; and Trex Hideaway, a hidden fastening system for specially grooved boards. Trex Company, Inc. was founded in 1996 and is headquartered in Winchester, Virginia.

Chart: finviz.com

Source: 4 Growth Stocks With Low Price-To-Free-Cash-Flow Analysts Recommend