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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 that 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 12%.
  3. Price to free cash flow is less than 13, (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 0.9.
  5. 10-day moving average is over 20-day moving average, and the cross happened 3 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 17, 2012, I obtained as results the 4 following stocks:

Data: finviz.com

Alaska Air Group, Inc. (NYSE:ALK)

The company's price to free cash flow for the trailing 12 months is very low 3.4, and the PEG ratio is also very low, only 0.49. The average annual earnings growth for the next 5 years (per annum) is quite high, 20.6%. On September 6, 2012, Alaska Air Group reported August operational results; Alaska reported an 8.1 percent increase in traffic on a 7.4 percent increase in capacity compared with August 2011. This resulted in a 0.6-point increase in load factor to an all-time monthly record of 88.9 percent. Alaska also reported 89.3 percent of its flights arrived on time in August, compared with the 90.8 percent reported in August 2011. All these factors make the stock quite attractive.

Business description from Yahoo Finance (see here):

Alaska Air Group, Inc., through its subsidiaries, provides scheduled air transportation for passengers and cargo. It offers extensive north/south service within the western United States, Canada, and Mexico; passenger and cargo services to and within the state of Alaska; and long-haul east/west service to Hawaii and 13 cities in the mid-continental and eastern United States. The company was founded in 1932 and is based in Seattle, Washington.

Chart: finviz.com

Comcast Corporation (NASDAQ:CMCSA)

The company's price to free cash flow for the trailing 12 months is only 12.7, and the PEG ratio is 1.32. The average annual earnings growth for the next 5 years (per annum) is quite high, 15.3%. Comcast declared a quarterly dividend of $0.1625 a share on the company's common stock. The quarterly dividend is payable on October 24, 2012, to shareholders of record as of the close of business on October 3, 2012, the forward annual dividend yield is now 1.80%. All these factors make the stock quite attractive.

Business description from Yahoo Finance (see here):

Comcast Corporation provides entertainment, information, and communications products and services in the United States and internationally. The company's Cable Communications segment offers video, high-speed Internet, and voice services to residential and business customers. As of December 31, 2011, it served 22.3 million video customers, 18.1 million high-speed Internet customers, and 9.3 million voice customers in 39 states and the District of Columbia. Its Cable Networks segment consists of national cable entertainment, national cable news and information, national cable sports, regional sports and news, and international cable networks; and a cable television production studio and digital media properties. Comcast Corporation was founded in 1969 and is headquartered in Philadelphia, Pennsylvania.

Chart: finviz.com

Laboratory Corp. of America Holdings (NYSE:LH)

The company's price to free cash flow for the trailing 12 months is only 12.5, and the PEG ratio is 1.28. The average annual earnings growth for the next 5 years (per annum) is 12.2%. During the second quarter of 2012, the company repurchased $130.3 million of stock, representing 1.5 million shares. As of June 30, 2012, $331.9 million of repurchase authorization remained under the company's previously approved share repurchase plan.

Business description from Yahoo Finance (see here):

Laboratory Corporation of America Holdings operates as an independent clinical laboratory company in the United States. The company offers a range of testing services used by the medical profession in routine testing, patient diagnosis, and in the monitoring and treatment of diseases. It also provides specialty testing services, such as HIV testing that include viral load measurements, genotyping and phenotyping, and host genetic factors for managing and treating HIV infections. The company was founded in 1971 and is headquartered in Burlington, North Carolina.

Chart: finviz.com

WESCO International Inc. (NYSE:WCC)

WESCO International has relatively low debt (long-term debt to equity is 0.43) and its price to free cash flow for the trailing 12 months is only 11.7. The average annual earnings growth for the next 5 years is 12.4%. Among the 19 analysts covering the stock, 11 rate strong buy, 5 rate buy and only 3 rate hold. WCC stock seems to be a good investment right now.

Business description from Yahoo Finance (see here):

WESCO International, Inc., a Fortune 500 company, engages in the distribution of electrical, industrial, and communications maintenance, repair, and operating (NYSE:MRO) products; and original equipment manufacturers products and construction materials. It also provides supply chain management and logistics services. The company offers general and industrial supplies, such as wiring devices, fuses, terminals, connectors, boxes, enclosures, fittings, lugs, terminations, tape, splicing and marking equipment, tools and testers, safety and security, personal protection, abrasives, cutting tools, tapes, consumables, fasteners, janitorial, and other MRO supplies. WESCO International, Inc. was founded in 1998 and is headquartered in Pittsburgh, Pennsylvania.

Chart: finviz.com

Source: 4 Large-Cap Growth Stocks With Positive Momentum