Looking For Solid, Growing Companies In A Recession

In dedication to my recent posts on value investing vs. trading strategies, I decided to focus this week’s screen to the market’s favorite word: growth. Specifically, the criteria used was positive revenue growth for the next fiscal year. Of course, this does not translate to earnings growth but management teams should have figured out there’s a recession and cut the cost side.

In addition to revenue growth, we are looking for companies that can thrive in this recession and take market share. These qualities are hard to quantify but I used ROE and ROA as measures of company quality, with the added kicker of a low debt-to-capital ratio so the company theoretically will have resources to pounce on opportunities. Finally, my frugal nature will not allow me to overpay so I looked for stocks with PE ratios below 15 and PEG ratios under 1.

The screen turned up 74 stocks:

  • AAON AAON, Inc.
  • ACN Accenture Ltd.
  • ARO Aeropostale, Inc.
  • ALGN Align Technology, Inc.
  • ALKS Alkermes, Inc.
  • ATI Allegheny Technologies Incorporated
  • ALGT Allegiant Travel Company
  • EPAX Ambassadors Group, Inc.
  • BIDZ BIDZ.com, Inc.
  • BIG Big Lots, Inc.
  • CRR CARBO Ceramics Inc.
  • CF CF Industries Holdings, Inc.
  • CVX Chevron Corporation
  • CBEH China Bio Energy Holding Group Co., Ltd.
  • CFSG China Fire & Security Group, Inc.
  • CGA China Green Agriculture, Inc
  • CPBY China Information Security Tech, Inc.
  • CMM China Mass Media Corp. (ADR)
  • CPHI China Pharma Holdings, Inc.
  • COH Coach, Inc.
  • GLW Corning Incorporated
  • CRY CryoLife, Inc.
  • DECK Deckers Outdoor Corporation
  • DSGX Descartes Systems Group (USA)
  • DO Diamond Offshore Drilling, Inc.
  • EGMI Electronic Game Card, Inc.
  • FOSL Fossil, Inc.
  • FUQI Fuqi International, Inc.
  • GME GameStop Corp.
  • GRMN Garmin Ltd.
  • GTI GrafTech International Ltd.
  • GHM Graham Corporation
  • SOLR GT Solar International, Inc.
  • GES Guess?, Inc.
  • HRBN Harbin Electric, Inc.
  • HQS HQ Sustainable Maritime Industries, Inc.
  • IGTE iGATE Corporation
  • BLUD Immucor, Inc.
  • ITI Iteris, Inc.
  • ITRN Ituran Location and Control Ltd. (US)
  • JCOM j2 Global Communications, Inc.
  • JST Jinpan International Limited
  • JOSB Jos. A. Bank Clothiers, Inc.
  • LHCG LHC Group, Inc.
  • MVL Marvel Entertainment, Inc.
  • MTRX Matrix Service Company
  • MTXX Matrixx Initiatives, Inc.
  • WFR MEMC Electronic Materials, Inc.
  • BKR Michael Baker Corporation
  • MUR Murphy Oil Corporation
  • UEPS Net17 1 Ueps Technologies Inc
  • NVS Novartis AG (ADR)
  • PTI Patni Computer Systems Limited (ADR)
  • PCP Precision Castparts Corp.
  • PSMT PriceSmart, Inc.
  • QCOR Questcor Pharmaceuticals, Inc.
  • SAPE Sapient Corporation
  • SCHN Schnitzer Steel Industries, Inc.
  • SOHU Sohu.com Inc.
  • SPAR Spartan Motors, Inc.
  • SHOO Steven Madden, Ltd.
  • SUWG Sunway Global Inc.
  • SRDX SurModics, Inc.
  • SYKE Sykes Enterprises, Incorporated
  • SYNT Syntel, Inc.
  • TSYS TeleCommunic…
  • TTEC TeleTech Holdings, Inc.
  • HCKT The Hackett Group, Inc.
  • WTSLA The Wet Seal, Inc.
  • TIVO TiVo Inc.
  • TKC Turkcell Iletisim Hizmetleri A.S. (ADR)
  • VAR Varian Medical Systems, Inc.
  • VASC Vascular Solutions, Inc.

In an effort to winnow the list further, I indulged my preference for dividends and narrowed the list to eight stocks with a requirement for yields above 2%: ATI, CCR, CVX, GRMN, ITRN, NVS, PSMT, TKC. I prepared a spreadsheet with estimated intrinsic values based on free cash flows which can be viewed here:

Spreadsheet: Solid Companies Projected To Grow Revenues Next Year

The spreadsheet reveals a few interesting points. First, there are limitations to discounting future free cash flows to estimate intrinsic value. Companies like Chevron should be examined from a few different angles in addition to DCF analysis. Second, keep in mind that pulling numbers from automated databases (I used Gridstone Research, Yahoo Finance, Reuters, among others) may not accurately reflect the company’s true state. For instance, though I screened for companies with PEG ratios less than 1, other sites had some PEGs listed well above 1. So take the screen results as a starting point for further research, not as a final word on valuation.

As for the stocks themselves, most of them look fairly valued after the recent market rally. Novartis (NVS) popped up on our last screen for solid dividend payers and may warrant an in-depth look. Chevron (CVX) would be interesting closer to $50 than $70. Turkcell (TKC) is exposed to volatile economic and political conditions, with the Turkish Lira taking a nosedive last year and the reigning political party always facing some threat from the secular establishment. I looked at Ituran (ITRN) some time back but was uncomfortable with the cushy net income kickback provision for the company’s head honcho.

The most promising stock (but only after a good-size pullback) was Garmin (GRMN). Take that with a grain of salt as I know very little about the personal gadgets and mobile hardware space — it is possible Garmin could be headed for the tech obsolescence bin. The company has generated solid free cash flow, especially over the last eight years, during which they averaged over 30% ROIC and ROE (yes, that’s 30% ROE with no debt currently on the books). All that combined with a 3% dividend at a sustainable payout ratio of 25% means I’ll be adding GRMN to my watchlist.

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