I searched for profitable companies with above-average growth prospects that pay significant dividends and that technically are showing positive momentum. I looked also for companies where the average analysts' recommendation is a buy or better.
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 the 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 10%.
3. Dividend yield is greater than 1.0%.
4. Annual rate of dividend growth over the past five years is greater than 5%.
5. Average analyst recommendations are bullish (less than 2).
6. 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).
After running this screen on October 19, 2012 before the market open, I obtained as results the following 5 stocks:
Allegheny Technologies Inc. (NYSE:ATI)
Allegheny engages in the production of specialty metals worldwide. It operates in three segments: High Performance Metals, Flat-Rolled Products, and Engineered Products.
Allegheny has a low debt (total debt to equity is 0.58) and it has a very low forward P/E of 11.22 and a low PEG ratio of 1.16. The average annual earnings growth estimates for the next 5 years is quite high at 15.7% and the forward annual dividend yield is 2.13%. The company is trading 37% below its 52-week high and has 49% upside potential based on the consensus mean target price of $49.1 for the company. Among the 11 analysts covering the stock, six rate it a strong buy and five rate it a buy. The ATI stock seems to be a good investment right now.
CAE Inc. (NYSE:CAE)
CAE Inc. designs, manufactures, and supplies simulation equipment services and develops integrated training solutions.
CAE has a quite low forward P/E of 12 and a PEG ratio of 1.58. The average annual earnings growth estimates for the next 5 years is 10.85% and the forward annual dividend yield is 1.90%. Among the nine analysts covering the stock, one rates it a strong buy and eight rate it a buy. On October 15, 2012, CAE announced that it has won a series of military contracts valued at approximately C$200 million, the majority of which involves long-term, recurring training services. The new contracts represent about 11.2% of CAE's annual revenue and will contribute to the continuous growth of the company. All these factors make the stock quite attractive.
Flowserve Corp. (NYSE:FLS)
Flowserve engages in the design, manufacture, distribution, and service of industrial flow management equipment.
Flowserve has a low debt (total debt to equity is only 0.40) and it has a low forward P/E of 13.07 and a low PEG ratio of 1.15. The average annual earnings growth for the past 5 years has been very high at 30.69 and the average annual earnings growth estimates for the next 5 years is quite high at 15%. The forward annual dividend yield is 1.07%. Among the 13 analysts covering the stock, six rate it a strong buy, five rate it a buy and only two rate it a hold. On October 03, 2012, Flowserve Corporation announced it has been awarded a five-year contract from Dow Benelux to perform maintenance of its rotating equipment and general machining. All these factors make the stock quite attractive.
GATX Corp. (GMT)
GATX Corporation leases, operates, manages, and remarkets assets in the rail and marine markets. The company operates in three segments: Rail, American Steamship Company (NYSE:ASC), and Portfolio Management.
GATX has a quite low forward P/E of 13.91 and a low PEG ratio of 1.19. The average annual earnings growth estimates for the next 5 years is quite high at 15% and the forward annual dividend yield is quite high at 2.68%. Among the 5 analysts covering the stock, 3 rate it a strong buy, one rates it a buy and one rates it a hold. There have been many insider buy transactions during the last 6 months. All these factors make the stock quite attractive.
Noble Corp. (NYSE:NE)
Noble Corporation operates as an offshore drilling contractor for the oil and gas industry. The company offers contract drilling services for oil and gas wells.
Noble has a low debt (total debt to equity is 0.59) and it has a very low forward P/E of 8.83 and a PEG ratio of 1.47. The average annual earnings growth estimates for the next 5 years is 12.63% and the forward annual dividend yield is 1.32%. Among the 40 analysts covering the stock, 12 rate it a strong buy, 24 rate it a buy, three rate it a hold and one rates it a underperform. On October 17, 2012, Noble Corporation reported third quarter 2012 results. The company said that its third-quarter net income fell 15 percent because of delays for ships and rigs in the Gulf of Mexico and offshore Brazil. David W. Williams, Noble's chairman, president and CEO, explained: "With few exceptions, these matters have now been resolved and we expect improved operational performance in the final quarter of 2012." The NE stock seems to be a good investment right now.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ATI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.