Growth and Value: Finding Growth Stocks at Excellent Values

Kevin Matras shows you how to find great growth stocks at an excellent value. See how this screening strategy has beaten the market in every year for the last six years.

This week’s screen has something for both Growth Investors and Value Investors alike.

Growth Investors focus on companies with great earnings growth, but that alone isn’t good enough for many stock pickers any more. They want good growth at reasonable prices (low P/E’s).

And while Value Investors focus on low P/E stocks, too many are low because they lack earnings power.

So instead, try combining the best of both worlds and focus on the companies with the highest growth rates with the lowest P/E ratios.

The screen I’m running this week is as follows:

  • Companies with 5 Yr. Historical Growth Rates to be in the top 20 percentile of all companies.

(Using a Uniform Rank of 1-99 (99 being the best growth rates), I screened for stocks ranked 80 or better.)

  • Companies that also happened to have the lowest P/E’s too – lower than 80% of all other companies.

(Using a Uniform Rank of 1-99 again (this time 99 having the lowest P/E’s), I screened for stocks ranked 80 or better.)

  • I then required those stocks to be trading at or above $5, ... with average daily trading volumes of 100,000 shares or more.
  • And a Zacks Rank of 2 or less.
    (Only ‘buys’ and ‘strong buys’ allowed).

Incidentally, this screen backtested very well, too. In fact, it beat the market in every year for the last 6 years (2001 thru 2006). (I ran a series of tests over the last five year time span, using a four-week rebalancing period. Each run was rebalanced over a different set of four-week periods to eliminate coincidence and verify robustness.)

In 2001, this screen showed an average annualized gross return of 42.6%. In 2002, it was 19.1%. In 2003, it was a whopping 93%. In 2004, it came in at 40.4%. 2005 was up 11.9%. 2006 was 16.8%. And so far in 2007 (YTD thru 3/9/07), its average compounded gross return is up 5.4%.

This screen is an excellent way to find good growth companies that also have low valuations.

There are 14 stocks that made it thru this week’s screen (3/19/07).


Company

Ticker

5 Yr. Hist.
EPS Rank
1-99 (higher # = best EPS)

5 Yr Hist.
EPS Gr.

P/E
Rank 1-99
(higher #
= lowest P/E)

P/E using 12 mo. EPS

Current
Price

Avg Daily Vol
(20 day avg.)

Zacks
Rank


AUTO MFRS - DOMESTIC

Paccar Inc

PCAR

86

53.65%

86

12.16

$72.33

1,730,648

2

ELEC-MISC COMPONENTS

Ceradyne Inc

CRDN

97

120.19%

88

11.71

$55.26

891,895

1

FINANCE-CONSUMER LOANS

First Marblehd

FMD

94

91.47%

88

11.66

$43.19

1,581,531

2

INSURANCE-PROP/CAS/TITLE

Arch Cap Gp Ltd

ACGL

85

49.85%

98

6.67

$64.25

209,999

2

Argonaut Grp

AGII

88

59.1%

86

12.14

$33.75

170,369

2

Ohio Cas Corp

OCAS

87

55.19%

93

9.76

$29.39

376,156

2

Phila Cons Hldg

PHLY

85

50.86%

84

12.85

$43.42

280,842

2

Safeco Corp

SAF

86

52.8%

92

9.97

$66.42

617,842

2

OIL & GAS-FIELD SERVICES

Global Inds Ltd

GLBL

92

76.05%

92

10.21

$16.85

2,142,846

1

OIL & GAS-INTL INTEGRATED

Total Fina Sa

TOT

87

55.78%

99

5.09

$65.19

1,936,932

2

STEEL-PRODUCERS

Arcelor Mittal

MT

93

86.45%

94

9.03

$50.05

2,656,583

2

Schnitzer Steel

SCHN

93

81.98%

94

9.33

$37.87

355,339

2

TELECOMMNCTNS-WIRELESS

Turkcell Il-Adr

TKC

86

53.79%

82

13.31

$13.19

788,442

1

ELECTRONICS-MANUFACTURING MACH

Siliconware-Adr

SPIL

91

75.76%

86

12.27

$9.26

1,543,454

1

Check it out for yourself. See where your stocks Rank out of all of the other stocks out there, and test your own strategies and see how they’ve done. Find out what works and what doesn’t. It can all be done with the Research Wizard stock picking and backtesting program. Sign up now for your two week free trial and learn how.
http://www.zacks.com/researchwizard/index.php?site=regrep

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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