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Arie Goren, Portfolio123 (475 clicks)
Long only, value, research analyst, dividend investing
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Historical studies have shown that on average, the highest returns have come from stocks with the lowest market capitalization, but there have been long periods when large-cap stocks have outperformed smaller stocks. This year so far, large-cap stocks have outperformed small-cap and mid-cap stocks with a significant margin.

Indexes Total Returns, Year to Date, are shown in the table below (Data through 10/19/2012):

I searched for large-cap very profitable companies with above-average growth prospects that pay significant dividends and that technically are showing positive momentum.

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 S&P 500 index. S&P Custom Indices Fact Sheet explanation:

Widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes 500 leading companies in leading industries of the U.S. economy. Although the S&P 500® focuses on the large cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. S&P 500 is part of a series of S&P U.S. indices that can be used as building blocks for portfolio construction.

2. Earnings growth estimates for the next 5 years (per annum) is greater than 10%.

3. The forward P/E is less than 14.

4. The annual dividend yield is greater than 1.10%.

5. The stock price has experienced a positive increase over the last four weeks.

6. The stock price is above its 50 days simple moving average (intermediate-term momentum indicator).

After running this screen on October 22, 2012 before the market open, I obtained as results the 5 following stocks:

Peabody Energy Corp. (BTU)

Peabody Energy Corporation engages in the mining of coal. It mines, prepares, and sells thermal coal to electric utilities and metallurgical coal to industrial customers.

Peabody Energy has a very low trailing P/E of 7.40 and a low forward P/E of 13.84. The PEG ratio is very low at 0.53 and the price to sales is also very low at 0.84. The price to free cash flow for the trailing 12 months is quite low at 10.76 and the average annual earnings growth estimates for the next 5 years is 13.83%. The forward annual dividend yield is 1.31%. The company is trading 45.2% below its 52-week high and has 22.1% upside potential based on the consensus mean target price of $31.62 for the company. The BTU stock has shown recently upside momentum; the price crossed-over its 50-days simple moving average eight days ago (intermediate-term momentum indicator) and the 10-day moving average crossed-over its 20-days simple moving average four days ago (short-term momentum indicator). Peabody Energy is scheduled to report its third-quarter 2012 financial results today, and the results would probably affect the short-term stock price.

Chart: finviz.com

International Game Technology (IGT)

International Game Technology engages in the design, development, manufacture, and marketing of electronic gaming equipment and systems worldwide.

International Game has a very low forward P/E of 11.40 and a low PEG ratio of 1.44. The average annual earnings growth estimates for the next 5 years is 12.21% and the forward annual dividend yield is 1.85%. The company is trading 27.3% below its 52-week high and has 23.2% upside potential based on the consensus mean target price of $16.01 for the company. The IGT stock has shown recently upside momentum; the 10-day moving average crossed-over its 20-days simple moving average three days ago. The IGT stock looks quite attractive.

Chart: finviz.com

Joy Global, Inc. (JOY)

Joy Global Inc. engages in the manufacture and servicing of mining equipment for the extraction of coal, copper, iron ore, oil sands and other minerals.

Joy Global has a very low trailing P/E of 8.86 and a very low forward P/E of 9.11. The PEG ratio is also very low at 0.54. The average annual earnings growth estimates for the next 5 years is quite high at 16.52% and the forward annual dividend yield is 1.13%. The company is trading 34.7% below its 52-week high and has 12.1% upside potential based on the consensus mean target price of $69.72 for the company. The JOY stock has shown recently upside momentum; the 10-day moving average crossed-over its 20-days simple moving average three days ago. All these factors make the stock quite attractive.

Chart: finviz.com

Morgan Stanley (MS)

Morgan Stanley is a financial holding company, it provides various financial products and services to corporations, governments, financial institutions and individuals worldwide.

Morgan Stanley has a very low forward P/E of 8.85 and a PEG ratio of 1.63. The average annual earnings growth estimates for the next 5 years is 12.28% and the forward annual dividend yield is 1.14%. The company is trading 16.7% below its 52-week high and has 14.5% upside potential based on the consensus mean target price of $20.08 for the company. Morgan Stanley stocks are selling below book value (P/B at 0.57) and the stock has shown recently upside momentum; the 10-day moving average crossed-over its 20-days simple moving average four days ago. All these factors make the stock quite attractive.

Chart: finviz.com

WellPoint Inc. (WLP)

WellPoint Inc., through its subsidiaries, operates as a health benefits company in the United States.

WellPoint has a very low trailing P/E of 8.45 and a very low forward P/E of 7.75. The PEG ratio is very low at 0.84 and the price to sales is also very low at 0.33. The price to free cash flow for the trailing 12 months is very low at 8.63 and the average annual earnings growth estimates for the next 5 years is 10.10%. The forward annual dividend yield is 1.86%. WellPoint stocks are selling below book value (P/B at 0.85) and considering its very low PEG ratio of 0.84, WLP stock definitely looks very attractive.

Chart: finviz.com

Source: 5 Large-Cap Dividend Paying Growth Stocks With Low Forward P/E And Positive Momentum