Seeking Alpha
, Portfolio123 (1,934 clicks)
Long only, value, research analyst, dividend investing
Profile| Send Message|
( followers)  

I searched for very profitable stocks with above average growth prospects. These stocks would have to show stable financial conditions and generate significant free cash flow. However, in order to find the proper moment to open a 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 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. Price to free cash flow is less than 15, (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).

4. The forward P/E is less than 16.

5. 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 powerful free screener to perform the search. After running this screen on October 28, 2012, I obtained as results the 7 following stocks:

Alliance Data Systems Corporation (NYSE:ADS)

Alliance Data Systems Corporation provides data-driven and transaction-based marketing, and customer loyalty solutions primarily in the United States and Canada.

Alliance Data Systems has a low forward P/E of 14.58 and its price to free cash flow for the trailing 12 months is very low at 7.06. The average annual earnings growth for the past five years has been quite high at 16.64% and the average annual earnings growth estimates for the next five years is 14.35%. On October 18, 2012, Alliance Data Systems reported Q3 results that were better than market expectations. Alliance Data raised its 2012 revenue projection to $3.6 billion from $3.5 billion. This also represents a year-over-year increase of 13%. The company revised the core earnings guidance upwards to $555 million from $542 million, exhibiting a 26% year-over-year increase. Core EPS is revised to $8.60 from $8.45, reflecting a 13% year-over-year increase. All these factors make the stock quite attractive.

Chart: finviz.com

Discover Financial Services (NYSE:DFS)

Discover Financial Services, a bank holding company, offers direct banking and payment services in the United States.

Discover Financial Services has a very low trailing P/E of 9.32 and a very low forward P/E of 9.38. The PEG ratio is also very low at 0.87. The price to free cash flow for the trailing 12 months is very low at 7.62 and the average annual earnings growth estimates for the next 5 years is 10.67%. On September 27, 2012, Discover reported stronger than expected third quarter results. Revenue grew 9.8% year-over-year to nearly $2 billion, which was slightly better than the consensus estimate. Earnings grew 2.5% year-over-year to $1.21 per share, which was far better than the drop in earnings the consensus was predicting. The DFS stock looks quite attractive.

Chart: finviz.com

Dice Holdings, Inc. (NYSE:DHX)

Dice Holdings, Inc. provides specialized career websites and career fairs for professional communities.

Dice Holdings has very low debt (total debt to equity is only 0.08) its forward P/E is quite low at 14.65 and it has a very low PEG ratio of 0.78. The price to free cash flow for the trailing 12 months is very low at 10.28. The average annual earnings growth for the past five years has been very high at 23.97%, and the average annual earnings growth estimate for the next five years is also very high at 16.55%. The company is trading 20.2% below its 52-week high, and has 12% upside potential based on the consensus mean target price of $9.83. During the third quarter of 2012, the company purchased 2,745,001 shares of its common stock on the open market pursuant to its stock repurchase plan at an average cost of $8.15 per share, for a total of approximately $22.4 million. All these factors make the stock quite attractive.

Chart: finviz.com

Amdocs Limited (NASDAQ:DOX)

Amdocs Limited provides software and services for communications, media, and entertainment industry service providers worldwide.

Amdocs has no debt at all and it has a low trailing P/E of 14.96 and a very low forward P/E of 11.27. The price to free cash flow for the trailing 12 months is very low at 14.06 and the average annual earnings growth estimate for the next five years is 10.10%. Amdocs is scheduled to report its forth-quarter 2012 financial results on November 05, and the results will probably affect the short-term stock price.

Chart: finviz.com

Encore Capital Group, Inc. (NASDAQ:ECPG)

Encore Capital Group, Inc. provides debt management and recovery solutions for consumers and property owners across a range of assets.

Encore Capital Group has a very low trailing P/E of 10.50 and a very low forward P/E of 7.68. The PEG ratio is also very low at 0.65. The price to free cash flow for the trailing 12 months is very low at 7.75. The average annual earnings growth for the past five years has been very high at 20.91%, and the average annual earnings growth estimate for the next five years is also quite high at 16.20%. Analysts like the stock; among the six analysts covering the stock, 3 rate it a strong buy, two rate it a buy and only one rates it a hold. Encore Capital is scheduled to report its third-quarter 2012 financial results on November 01, and the results will probably affect the short-term stock price.

Chart: finviz.com

Graphic Packaging Holding Company (NYSE:GPK)

Graphic Packaging Holding Company provides packaging solutions in the United States, Canada, Central/South America, Europe, and the Asia-Pacific.

Graphic Packaging Group has a very low trailing P/E of 8.44 and a low forward P/E of 14.07. The PEG ratio is very low at 0.50. The price to free cash flow for the trailing 12 months is very low at 9.59 and the average annual earnings growth estimate for the next five years is also quite high at 17%. Analysts like the stock; among the seven analysts covering the stock, 4 rate it a strong buy, one rates it a buy and two rate it a hold. On October 25, 2012, Graphic Packaging reported better than expected third quarter profit results. The company said that excluding restructuring costs it would have earned 11 cents per share in this year's quarter, Analysts expected 9 cents per share. The GPK stock seems to be a good investment right now.

Chart: finviz.com

IntercontinentalExchange, Inc. (NYSE:ICE)

IntercontinentalExchange, Inc. operates regulated exchanges, clearing houses, and over-the-counter markets for agricultural, credit, currency, emissions, energy, and equity index contracts.

IntercontinentalExchange has very low debt (total debt to equity is only 0.26) its forward P/E is quite low at 15.45 and it has a low PEG ratio of 1.03. The price to free cash flow for the trailing 12 months is quite low at 14.32. The average annual earnings growth for the past five years has been very high at 23.47%, and the average annual earnings growth estimate for the next five years is also very high at 16.93%. IntercontinentalExchange is scheduled to report its third-quarter 2012 financial results on November 05, and the results will probably affect the short-term stock price.

Chart: finviz.com

The DHX stock seems to be a good investment right now.

Source: 7 Growth Stocks With Positive Momentum