Introduction
Welcome to the Growth at a Reasonable Price screen for May. Generally, growth at a reasonable price is not an investment criterion for value investors, but these screens do turn up stocks that can satisfy stricter value investment filters.
That being said, mid-cap stocks are less likely to exhibit both value and growth attributes as these are more or less mature and well-followed companies. Any results found via this screen can be a great long-term hold.
Screen Details
This screen looks for mid cap stocks between $2 Billion and $5 Billion in market capitalization with attractive growth characteristics. We require a reasonable PEG ratio to ensure attractive valuation. Some of the other parameters include:
- EPS 5 Year Avg Growth > 15%
- EPS Next Year Estimated Change > 15%
- Earnings Yield > 5%
- Operating Income 5 Year Avg Growth > 15%
- PEG Ratio, forward < 1.2
- PEG Ratio, trailing < 1.2
- Sales 5 Year Avg Growth > 8%
The Screen Results
Stock | Company | EPS growth, 5 YR Avg | Earnings Yield | peg ratio, forward | sales growth, 5 yr avg |
|---|---|---|---|---|---|
PFSI | Pennymac Financial Svcs | 31.8% | 25.2% | 0.3 | 23.9% |
SMCI | Super Micro Computer | 25.4% | 7.0% | 0.9 | 14.7% |
TKR. |
Timken |
25.3% |
8.1% |
0.9 |
9.5% |
Notes and Observations
- PFSI: I think real estate is due for a cyclical correction now and this may already be in process. Avoid.
- SMCI: Computing and server services is a sector I am currently bullish on, notwithstanding the chip shortage. This is definitely worth a second look. Remember though that SMCI has been through scandals and allegations of backdoors on their hardware so caution is warranted.
- TKR: Appears to be fairly valued. Could become attractive if the prices decline further.
Ending Note
It is no surprise that we did not find any idea worth pursuing with this screen. The current market conditions place any recent growth in certain industries as unsustainable, while high valuations make a good price hard to find in better followed names in the mid cap asset class.