Introduction
Welcome to the Growth at a Reasonable Price screen for November. Generally growth at a reasonable price is not an investment criteria for value investors, but these screens do turn up stocks that can satisfy a 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 |
|---|---|---|---|---|---|
MDC | M.D.C Holdings | 19.2% | 7.9% | 1.0 | 13.1% |
PE | Parsley Energy | 36.3% | 6.3% | 0.4 | 48.2% |
Notes and Observations
- MDC: I think real estate is due for a cyclical correction and this should arrive with the next downturn soon. Avoid.
- PE: Oil and Gas sector is in a cyclical funk and many low quality operations are likely to liquidate. An Altman Z-Score of 1.2 shows that Parsley Energy can be at risk of such an eventuality. In fact, cash on the balance sheet has declined from $703 million at the end of 2017 to $163 million at the end of 2018 to just $5 million as of Sep 2019. Avoid.
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.
