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 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 in, the picture for stocks pulled from any screen isn't clear until we add the appropriate hues. In "Color to the Numbers," we enlist Motley Fool CAPS to take a deeper look at a screen for top mid-cap stocks.
Better a screen than a window
In CAPS, investors can see how the community rates a company collectively 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.
Let's look at today's growth screen, using these criteria:
- Market cap between $1 billion and $5 billion.
- Price to earnings to growth (PEG) ratio of less than 1.0.
- Free cash flow (FCF) 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, the stocks that have already hit their stride, with strong performance but at a still-palatable price. Of course, there may be 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 |
PEG |
Trailing |
CAPS rank |
|---|---|---|---|
|
Polycom |
0.97 |
$108.2 |
**** |
|
Medicis Pharmaceutical |
0.91 |
$152.8 |
**** |
|
Digital River |
0.78 |
$104.7 |
*** |
|
Monster Worldwide |
0.93 |
$185.0 |
** |
|
AMR |
0.30 |
$1,458.0 |
* |
* in millions.
100 ways to say hello
At four stars, one high-ranked mid-cap showing on our screen today, Polycom, is a leader in the growing space of distance communications -- a range of audio and videoconferencing systems. The company has partnerships with some of the biggest and best in networking, including Cisco
Polycom shares have drifted downward since the summer as the company returned growth that didn't live up to past levels or investors' expectations. Margins have dipped as well, partly due to the acquisition of SpectraLink, which brought enterprise telephony over Wi-Fi into the Polycom fold of products.
The lower stock price and forward earnings multiple of 15.9 is what puts Polycom on our screen this week, and many CAPS investors couldn't be happier. As the stock wafted, the CAPS rank on Polycom has gone up, with many investors expressing confidence in the long-term demand for high-margin videoconferencing. Indeed, more than 92% of investors rating the company believe it will outpace the S&P going forward.
Monster of a stock
Moving more toward the bottom of our favored mid-cap list, online employment company Monster Worldwide checks in with a two-star rating. Like Polycom, Monster has seen its stock tumble this year, but for a different mix of reasons. The fun started when the company again shuffled the top ranks, and piggybacked the turbulence at the top with domestic operating results that didn't live up to expectations.
While Monster operates profitably and sees great growth opportunities internationally, the company has continued to restructure the business and clean up the mess in operations to return to a growth trajectory. But some investors believe competitive pressure from similar sites like CareerBuilder and HotJobs.com as well as social networks such as Facebook and MySpace give Monster little moat. All this adds up to a good contingent of CAPS All-Stars -- 30% to be exact -- betting against the company.
Let 78,000 investors 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.
