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Arie Goren, Portfolio123 (470 clicks)
Long only, value, research analyst, dividend investing
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Large-cap growth stocks have been a bit laggard this year, the total return year to date (10/19/2012) of the Russell 1000 Growth Index was 13.22%, while the appreciation of the Russell 1000 Value Index during the same period was 14.66%. Nevertheless, there are still many promising candidates among the large-cap growth stocks.

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:

  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.

  1. Earnings growth estimates for the next 5 years (per annum) is greater than 11%.

  2. Price to free cash flow is less than 20, (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).

  3. Total debt to equity is less than 0.9.

  4. The 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 free screener to perform the search. After running this screen on October 21, 2012, the following four stocks came up:

Kohl's Corp. (KSS)

Kohl's Corporation operates department stores in the United States.

Kohl's Corp. has a low trailing P/E of 12.51 and a very low forward P/E of 10.36. The PEG ratio is quite low at 1.09 and the price to sales is also very low at 0.66. Kohl's Corp. pays a dividend and the forward annual dividend yield is quite high at 2.42%. The KSS stock has shown recently upside momentum; the price crossed-over its 50 days simple moving average three days ago (intermediate-term momentum indicator) and the 10 days moving average crossed-over its 20 days simple moving average a day ago (short-term momentum indicator). All these factors make the stock quite attractive.

Chart: finviz.com

Legg Mason Inc. (LM)

Legg Mason, Inc. provides asset management and related financial services to institutional and individual clients, company-sponsored mutual funds, and other pooled investment vehicles worldwide.

Legg Mason has a very low debt (total debt to equity is only 0.21) and it has also a very low forward P/E of 11.29 and a PEG ratio of 1.90. The average annual earnings growth estimates for the next 5 years is 12.45%. Legg Mason pays a dividend and the forward annual dividend yield is 1.74%. Legg Mason shares are selling below book value (P/B at 0.63) and the stock has shown recently upside momentum; the price crossed-over its 50 days simple moving average two days ago and the 10 days moving average crossed-over its 20 days simple moving average a day ago. The LM stock seems to be a good investment right now.

Chart: finviz.com

Transocean Ltd. (RIG)

Transocean Ltd. provides offshore contract drilling services for oil and gas wells worldwide.

Transocean has a very low forward P/E of 10.83 and a very low PEG ratio of 0.95. The price to free cash flow for the trailing 12 months is 16.28 and the average annual earnings growth estimates for the next 5 years is quite high at 17.05%. RIG stock has shown recent upside momentum; the price crossed-over its 50 days simple moving average two days ago and the 10 days moving average crossed-over its 20 days simple moving average a day ago. RIG shares seem to be a good investment right now.

Chart: finviz.com

Waste Connections Inc. (WCN)

Waste Connections is an integrated solid waste services company, it provides solid waste collection, transfer, disposal, and recycling services.

Waste Connections has relatively low debt (total debt to equity is 0.55) and its price to free cash flow for the trailing 12 months is 19.33. The average annual earnings growth for the past five years has been 14.69% and the average annual earnings growth estimates for the next five years is 13.85%. Waste Connections pays a dividend and the forward annual dividend yield is 1.14%. The WCN stock has shown recently upside momentum; the price crossed-over its 50 days simple moving average four days ago and the 10 days moving average crossed-over its 20 days simple moving average a day ago. All these factors make the stock quite attractive.

Chart: finviz.com

Source: 4 Large Cap Growth Stocks With Positive Momentum