Seeking Alpha
, Portfolio123 (1,583 clicks)
Long only, value, research analyst, dividend investing
Profile| Send Message|
( followers)  

In looking for future winners among large-caps, I searched for stocks with above-average growth prospects. Those stocks would have to show stable financial conditions and generate significant free cash flow. 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 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 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 for the next 5 years (per annum) is greater than 10%.
  3. 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).
  4. Long term debt to equity is less than 0.5.
  5. 10-day moving average is over 20-day moving average, and the cross happened two days or less prior to the start of the screen (Short term momentum indicator).

I used Portfolio123's powerful free screener to perform the search. After running this screen on September 16, 2012, I obtained as results the following four stocks:

Data: finviz.com

Agilent Technologies Inc. (NYSE:A)

Agilent has low debt (total debt to equity is 0.45) and its price to free cash flow for the trailing 12 months is only 13.36. The average annual earnings growth estimates for the next 5 years is 12.1%. Among the 17 analysts covering the stock, 9 rate it a strong buy, 7 rate it buy and only 1 rates it hold. The Enterprise Value to EBITDA ratio is only 9.82, much lower than its peers' average. Agilent stock seems to be a good investment right now.

Business description from Yahoo Finance (see here):

Agilent Technologies, Inc. provides bio-analytical and electronic measurement solutions to the communications, electronics, life sciences, and chemical analysis industries worldwide. Its Electronic Measurement segment offers electronic measurement instruments and systems, and software design tools that are used in the design, development, manufacture, installation, deployment, and operation of electronics equipment and microscopy products. The company was founded in 1999 and headquartered in Santa Clara, California.

Chart: finviz.com

CF Industries Holdings, Inc. (NYSE:CF)

CF Industries has low debt (total debt to equity is 0.32) and its price to free cash flow for the trailing 12 months is only 7.78. The average annual earnings growth for the past 5 years was very high 105%, and the average annual earnings growth estimate for the next 5 years is 10.7%. On September 14, 2012, CF Industries was upgraded by JP Morgan to overweight from neutral with a $253 price target due to improving supply/demand fundamentals. All these factors make the stock quite attractive.

Business description from Yahoo Finance (see here):

CF Industries Holdings, Inc., through its subsidiary, CF Industries, Inc., manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. It operates in two segments, Nitrogen and Phosphate. The Nitrogen segment principally offers ammonia, granular urea, urea ammonium nitrate solution, urea liquor, diesel exhaust fluid, and aqua ammonia. The company was founded in 1946 and is headquartered in Deerfield, Illinois.

Chart: finviz.com

Dolby Laboratories, Inc. (NYSE:DLB)

Dolby Laboratories has no debt at all and its price to free cash flow for the trailing 12 months is only 10.45. The average annual earnings growth for the past 5 years was very high 27.93%, and the average annual earnings growth estimate for the next 5 years is also high 14.25%. On September 06, 2012, Amazon.com (NASDAQ:AMZN) unveiled the new Kindle tablets, the e-commerce leader became the first company to incorporate Dolby Laboratories' Dolby Digital Plus audio technology into a tablet computer. Dolby sees tablets as a market where it can boost its presence and revenue. Dolby stock seems to be a good investment right now.

Business description from Yahoo Finance (see here):

Dolby Laboratories, Inc. provides products, services, and technologies for the entertainment industry worldwide. It designs and manufactures video and audio products for film production, cinema, and television broadcast industries; and provides services to support film production, television broadcast, and music production. The company was founded in 1965 and is based in San Francisco, California.

Chart: finviz.com

MetLife, Inc. (NYSE:MET)

MetLife has relatively low debt (long term debt to equity is 0.35) and its price to free cash flow for the trailing 12 months is very low only 2.9. The average annual earnings growth for the next 5 years is 12.3%. Among the 22 analysts covering the stock, 5 rate it strong buy, 14 rate it buy and only 3 rate it hold. All these factors make the stock quite attractive.

Business description from Yahoo Finance (see here):

MetLife, Inc., through its subsidiaries, provides insurance, annuities, and employee benefit programs in the United States, Japan, Latin America, the Asia Pacific, Europe, and the Middle East. The company offers group life insurance products, including variable, universal, term, and whole life products, as well as employee paid supplemental life products; and individual life insurance products comprising variable, universal, term, and whole life products, as well as a range of mutual funds and other securities products. MetLife, Inc. was founded in 1863 and is based in New York, New York.

Chart: finviz.com

Source: 4 Large-Cap Growth Stocks With Positive Momentum