Color to the Numbers: Top Mid-Cap Value Stocks

Thanks to the Internet, and sites such as Yahoo! Finance and MSN Money, investors have more tools than ever to search for stock ideas by running screens. But screens often return numerous stocks that need to be weeded out, because the numbers don't tell the whole story. Maybe the massive growth at one company was due to one-time tax adjustments, not core operations, for instance.

Just like the color-by-numbers books kids doodle on, the picture for stocks pulled from any screen isn't clear until we add the appropriate hues. In this edition of "Color to the Numbers," we'll enlist Motley Fool CAPS for a Foolish look at a screen for mid-cap value stocks. We'll examine which stocks merit further investigation and which should be cast aside.

Better a screen than a window
In CAPS, investors can see how the collective community rates a company and can compare that rating with the opinions of the very best All-Star stock pickers -- CAPS players with a ranking greater than 80. There are even pitch commentaries and blogs to lend detail to the bull and bear opinions. In all, CAPS gives investors qualitative resources far beyond mere numbers and tables.

To run this screen, we'll use the following criteria:

• Market cap between $1 billion and $10 billion.
• A debt-to-equity ratio of less than 0.5.
• Free cash flow of at least $100 million.
• A projected five-year earnings growth rate of at least 15%.
• A forward price-to-earnings ratio of less than 15.

This should give us the cream of the crop in terms of companies on a solid foundation with decent expectations for earnings growth. But numbers alone don't make a company a good investment. (Hint: This is where CAPS can really help.)

Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.

Vulcan mind meld
Investors often view the business of construction-aggregate materials -- crushed stone and gravel -- as a sleepy, steady sector. The past decade, though, has been anything but slow for Vulcan Materials, the largest producer of aggregates in the United States. The building boom of the past several years has been good to Vulcan, in that it's fueled a nearly 10% annual increase in net income over the past decade. But the slowdown in residential construction finally caught up with the company and has spooked many investors out of the stock, which has lost more than 30% in the past five months.

Vulcan management, though, claims that its business is well positioned to weather the housing storm. It also expects aggregate prices to actually rise between 12% and 13% this year because of continued demand in commercial and public construction. Many investors in the CAPS community agree with management that public spending on roads, bridges, and other infrastructure will help buoy the company through the rough housing patch, with 139 out of the 150 CAPS investors ranking the company giving it a thumbs-up. Some investors are also optimistic about new growth following a settled lawsuit with the city of Modesto, Calif., and a merger with fellow aggregate producer Florida Rock.

Light bright
Recent Motley Fool Stock Advisor recommendation Genlyte Group sells commercial lighting systems and has also had its stock caught up in the gloom-and-doom phrase du jour -- "residential housing glut." The more than 25% drop in the stock over the past five months has obscured the fact that the Kentucky-based company has been efficiently managing its business to steadily grow both gross and operating margins over the past several years. Investors looking for value in an unfavorable leader may want to check out Genlyte's CAPS page, where dozens of investors give reasons why more than 98% of investors voted for the stock to beat the S&P going forward.

Let 72,000 investors be the judge
The collective wisdom of a huge pool of investors can quickly add color to a whitewashed page of numbers. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury and should perform their own research.

Want to see your favorite screen results run through the wringer in the CAPS community? It's free to tap the knowledge base, and even give your own opinion, in Motley Fool CAPS.