Color to the Numbers: Top Large-Cap Value 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 and not core operations. Or maybe the screen didn't include the latest announcement that a dividend was canceled.

So just like the color-by-numbers books that kids doodle on, the picture for stocks pulled from any screen doesn't become clear until the appropriate color gets added to the page. In this edition of "Color to the Numbers," we'll enlist Motley Fool CAPS to take a Foolish look at a screen for large-cap value stocks, to see which ones may be worth investigating further 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 large-cap value 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 higher than 80 -- rate a given stock. There are even pitch commentaries and blogs that give details behind bull and bear opinions. These tools give investors many more qualitative resources than just numbers and tables.

So let's take a look at our value screen for today and a handful of the top stock candidates it returned. To run this screen, we'll use the following criteria:

• Market cap of at least $5 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. The debt-to-equity ratio and free cash flow hurdle will clear out companies that are more leveraged and aren't yet generating a healthy level of free cash. The earnings growth and forward P/E criteria combine to give us a forward-looking PEG ratio (the forward P/E divided by the estimated growth) of less than 1 and will help sift out only those stocks trading at a reasonable value. But the PEG alone doesn't dictate the value of a company or make it 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.

Concerns about Valero's ability to protect its margins have helped put selling pressure on shares and have recently raised short interest in the stock. As the largest independent oil refiner in the U.S., Valero's fate tends to go hand in hand with the price of oil and the outlook for fuel demand. But many other conditions are factored into the market's bullish or bearish stance on the company, including the threat of new refineries being built, politics, and uncertainty regarding actions in OPEC.

Collectively, all this uncertainty has kept Valero's stock at a reasonable level for a value investor to consider -- at least in terms of numbers. Those bullish on the energy sector in general tend to favor Valero for its ability to process lower-grade sour crude into useable fuel, providing it a solid moat against competitors. But even with this advantage, maintaining an expected long-term growth rate of 13% means many macroeconomic factors will need to stay in place as well, fuel demand and high energy prices being the primary ones. Still, the overwhelming majority of CAPS players think Valero's risk is low compared to the potential rewards, and only 15 out of 683 All-Stars are betting the company won't be able to outperform the market going forward.

With a global economy that reaches farther each day, there's little doubt that demand for shipping will continue. But the cost necessary to supply fast and efficient transportation of goods is one major concern that helped FedEx make our value screen today. Another reason some investors are a little weary about the global package delivery specialist is simply because of tough competition from shippers UPS and DHL. Add to that concerns about increasing fuel and labor costs, particularly for pilots flying oil-gobbling jets, and you've got a good recipe for selling.

But FedEx's long history and experience in the shipping business still make it a worthy contender in the space, even with current threats. The increasing demand for shipping products bought online from sellers such as eBay and Amazon will continue to stoke demand, even with corporations and consumers' efforts to go all-digital and ship documents via the Web (have you ever tried to send or take delivery of a book or new iPod through your broadband connection?). CAPS investors still largely admire the company as well, with 1,274 of the 1,337 investors giving the company a bullish vote.

Let 60,000 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.

UnitedHealth was selected by the Motley Fool Inside Value team for its great prospects at a bargain price. A free 30-day trial shows the full list of companies lead analyst Philip Durell thinks are trading below intrinsic value and poised to beat the market.

Fool contributor Dave Mock does his best to color within the lines, but he reserves his right to artistic expression. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. FedEx, UnitedHealth, and eBay are Stock Advisor recommendations. UPS is an Income Investor selection. The Fool's disclosure policy doesn't see color or the wart on your nose.