Color to the Numbers: Top Mid-Cap Growth Stocks

Thanks to the Internet and sites such as Yahoo! and MSN Money, investors have more tools than ever to search for stock ideas by running screens of stock databases. 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. Or maybe the screen didn't include the latest announcement of a cancelled dividend.

Just like the color-by-numbers books kids doodle on, the picture for stocks pulled from any screen is not clear until the appropriate hues are added. In this edition of "Color to the Numbers," we'll enlist Motley Fool CAPS to take a Foolish look at a screen for mid-cap growth stocks, examining which stocks may merit further investigation, and which should be cast aside.

Better a screen than a window
The community of knowledgeable investors who rate stocks in CAPS will help us in our search for mid-cap growth stocks. By pulling up a quote on a particular stock in CAPS, investors can see at a glance how the collective community rates a company today. Additionally, investors can see how the very best All-Star stock pickers -- CAPS players with a ranking greater than 80 -- rate a given stock. There's even pitch commentary and blogs that give details behind bull and bear opinions. In all, CAPS gives investors much more qualitative resources than mere numbers and tables.

Let's look at today's growth screen, using the following criteria:

• Market cap between $1 billion and $5 billion.
• Price to earnings to growth (PEG) ratio of less than 1.0.
• Free cash flow of at least $100 million.
• Estimated annual earnings growth of at least 20% for the next five years.

This should give us the cream of the crop: Stocks that have already hit their stride, with strong performance but a still-palatable price. Of course, there may be very good reasons why these companies trade at low multiples.(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.

With our emphasis on cash flow and price over growth, it's not too surprising to see many of these stocks highly favored by CAPS investors. Though these stocks span varied industries, several sport CAPS' highest five-star rating, while others draw bearish sentiments from a few top investors.

Starting with one of our list-toppers, we find one five-star stock whose great numbers could use a dose of color. The company provides outsourcing services for underwriting and securitizating loans for the student loan industry. However, significant changes and challenges facing the company have some wondering whether First Marblehead is really a five-star stock.

Much of the company's income is concentrated in JPMorgan and Bank of America (NYSE:BAC) which recently agreed to buy First Marblehead rival Sallie Mae. The potential loss of significant business has harmed First Marblehead's shares recently, but many CAPS investors see the drop as an overreaction, sensing an opportunity to get shares cheap.

Auction house Sothebys has also earned five stars on CAPS. Several players like Sothebys' prospects, given the number of baby boomers entering their prime years for buying and selling collectibles. As the rich get richer, investors hold that Sotheby's will profit regardless of the overall economy, since it deals in such rarified wares as fine art and collectibles. All 40 CAPS All-Stars rating Sotheby's believe that it will beat the S&P going forward.

Despite strong cash flow and a solid PEG of 0.57, office furniture maker Steelcase doesn't get quite so warm a reception from CAPS. The office furniture business is highly cyclical, and Steelcase's expected future growth may not materialize if the economy heads south. While some CAPS investors like Steelcase's strong balance sheet and good value, they're countered by five of 22 CAPS All-Stars, who give the company a thumbs-down.

Let 30,700 investors be the judge
The collective wisdom of a huge pool of investors can quickly enliven a whitewashed page of numbers. But even with an entire community acting as the judge, individual investors are still the jury. Perform your own research, Fools! 

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

Fool contributor Dave Mock does his best to color within the lines, but reserves his right to artistic expression. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. Bank of America and JPMorgan Chase are Income Investor recommendations. First Marblehead is a Motley Fool Hidden Gems recommendation. InterDigital is a Stock Advisor recommendation. The Fool's disclosure policy doesn't see color or the wart on your nose.