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. (NYSE: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.