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 positive 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:
- 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 11%.
- Long term debt to equity is less than 0.8.
- 10-day moving average is above 20-day moving average, and the crossover happened 2 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 October 1, 2012, I obtained as results the 4 following stocks (click to enlarge images):
Cerner Corporation (CERN)
Cerner is contributing to the systemic change of health and care delivery. For more than 30 years Cerner has been executing its vision to make health care safer and more efficient. They started with the foundation of digitizing paper processes and now offer the most comprehensive array of information software, professional services, medical device integration, remote hosting and employer health and wellness services. Cerner Corporation was founded in 1979 and is headquartered in North Kansas City, Missouri.
Cerner has very low debt (total debt to equity is only 0.07). The average annual earnings growth for the past five years has been very high 21.27% and the average annual earnings growth estimates for the next five years is also very high 19.43%. On July 26, 2012, Cerner announced that it has a total backlog of $6.51 billion, up 20% over the year-ago quarter. This was comprised of $5.80 billion of contract backlog and $714 million of support and maintenance backlog. All these factors make the stock quite attractive.
Hubbell Inc. (HUB.B)
Hubbell Incorporated engages in the design, manufacture, and sale of electrical and electronic products in the United States and internationally.The Company operates through multiple manufacturing divisions and subsidiaries located in the United States, Canada, Puerto Rico, Italy, Brazil, Switzerland and the United Kingdom. Hubbell Incorporated was founded in 1888 and is based in Shelton, Connecticut.
Hubbell has low debt (total debt to equity is 0.39) and the PEG ratio is 1.40. The average annual earnings growth estimates for the next 5 years (per annum) is 11.55%. Hubbell pays dividend, the forward annual dividend yield is quite high 2.10%. On July 19, 2012, Mr. Powers Chairman and Chief Executive Officer of the company said
Based on our strong performance in the first half of the year, we anticipate being able to generate record EPS in 2012. We expect to increase our operating margin by at least 50 basis points for the year due to the higher sales and benefit of favorable pricing in excess of commodity costs.
There is also HUB.A type of stocks but the trade volume of those stocks is very low.
O'Reilly Automotive Inc. (ORLY)
O'Reilly Automotive, is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States, serving both professional service providers and do-it-yourself customers. Founded in 1957 by the O'Reilly family, the Company operated 3,859 stores in 39 states as of June 30, 2012.
O'Reilly has low debt (total debt to equity is only 0.31) and its price to free cash flow for the trailing 12 months is quite low only 10.83. The average annual earnings growth for the past five years has been very high 20.45% and the average annual earnings growth estimates for the next five years is also high 17.04%. The PEG ratio is quite low 1.14. On August 10, 2012, O'Reilly announced that its Board of Directors approved a resolution to increase the authorization amount under its share repurchase program by an additional $500 million, raising the aggregate authorization under the program to $2.5 billion. The ORLY stock seems to be a good investment right now.
SIRIUS XM Radio Inc. (SIRI)
Sirius XM Radio is America's satellite radio company. SiriusXM broadcasts more than 135 channels of commercial-free music, premier sports, live news, talk, comedy, entertainment, traffic and weather to 22.9 million subscribers. SIRIUS is one of the world's largest pure-play audio entertainment companies and is among the largest subscription media companies in the United States. Sirius XM Radio Inc. was founded in 1990 and is headquartered in New York, New York.
SIRIUS has relatively low debt (total debt to equity is 0.72) and its average annual earnings growth estimates for the next 5 years is very high 25.2%. During the second quarter of 2012, Sirius had had a record subscriber growth. Self-pay net subscriber additions improved by 28% year-over-year to 463,000, pushing the self-pay subscriber base to an all-time high of 18.7 million subscribers. The total paid subscriber base rose to a record high 22.9 million subscribers. Strong auto sales helped lift total paid and unpaid trial inventory by approximately 400,000 from the first quarter to 6.1 million. All these factors make the stock quite attractive.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.