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 large-cap growth 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 our growth screen, we'll use the following criteria:
- Market cap of at least $5 billion.
- Price-to-earnings-to-growth (PEG) ratio of less than 1.0.
- Free cash flow of at least $250 million.
- Estimated annual earnings growth of at least 20% for the next five years.
This should give us the cream of the crop in terms of stocks that have strong projected 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.
|
Company |
Estimated 5-Year Growth |
CAPS Rank (out of 5) |
|---|---|---|
|
America Movil |
33% |
***** |
|
Noble |
22% |
***** |
|
Taiwan Semiconductor Manufacturing |
22% |
***** |
|
Infosys Technologies |
26% |
***** |
|
Coach |
20% |
*** |
|
Tata Motors |
20% |
***** |
|
Weatherford International |
21% |
***** |
Talk is cheap
Providing wireless services in emerging markets in Latin America has been the key to dramatic growth at communications giant America Movil, yet the company still trades at a current earnings multiple of 22. I've written before about the company's cheap valuation relative to peers targeting emerging markets, and today's price still makes the company attractive.
CAPS investors largely agree, with 1,073 of 1,084 investors who have rated America Movil giving it the thumbs-up to beat the market going forward. Savvy management and underpenetrated markets have combined to help the company maintain strong operating margins of higher than 25% for the past six quarters. With subscriber penetration levels well below saturation in many operating countries and new value-added services coming into the mix, America Movil still has a fertile field yet to be fully exploited.
It's in the bag
As far as retailers go, handbag and accessory maker Coach is a cut above the rest. The maker of premium handbags, jewelry, and footwear has also delivered premium same-store sales well above those of its peers (and well above those of companies that target less affluent shoppers). Consistent revenue growth of more than 25% for several years has made Coach one monster of a stock, demonstrating superior management that knows the high-end consumer market well.
After Coach reported "only" 19% comps growth at its U.S. stores in the most recent quarter, investors dropped the shares more than 10%. But while you won't find one of those chic handbags marked down on the bargain table, value investors will notice the share price sporting a new, more discounted look these days. CAPS investors are still divided on whether Coach will outperform the market, though, with more than 10% of CAPS All-Stars giving the stock the thumbs-down.
Let 73,000 investors be the judge
It may be difficult to discern just where opportunities lie with large-cap growth stocks, especially when you're just "running the numbers." Thankfully, the collective wisdom of a huge pool of investors can quickly add color to the outlines. But even with an entire community's worth of qualified opinions acting as the judge, individual investors should still perform their own research.
Want to see your favorite screen results get run through the wringer in the CAPS community? It's free to tap the knowledge base and even give your own opinion. Check out Motley Fool CAPS for yourself!
