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Stock Screen: Stocks with Healthy Price Appreciation Potential – November 10, 2010
In this screen, we focus on stocks that are expected to perform well both in the next six to 12 months and for the pull to 2013-2015. To be included in our list, issues had to be ranked 3 (Average), or better, for Timeliness (i.e. relative price performance in the year ahead), one of Value Line’s many proprietary rankings. Additionally, capital appreciation potential over the next three to five years, as derived from our analysts’ earnings projections, had to be at least 150%. Next, the minimum annual total return potential (a combination of price appreciation and dividends) was pegged at 26%. Meanwhile, to eliminate stocks that have more-than-normal risk, we called for Safety ranks (another one of Value Line’s proprietary measures) of no worse than 3 (Average). That is, Safety ranks of 4 (Below Average) and 5 (Lowest) were excluded. Finally, any stock that had recently traded at a price of less than $10 a share was dropped from the list.
The resulting group is expected to perform at least in line with, if not better than, the broad market in the near term. Better yet, our analysts feel that these stocks appear to be good long-term holdings. Investors should note that all data for this screen are from the Value Line Investment Survey dated October 29, 2010. Below are some highlights:
Skechers U.S.A. (SKX) designs and markets branded contemporary casual, active, and rugged footwear for men, women, and children. The company owns over 200 retail stores in the United States and nearly 30 more in foreign markets. It also sells to department and specialty retail stores. Skechers relies on international distributors to bolster its presence overseas; these distributors own more than 100 Skechers retail stores in nearly 25 countries.
Share net more than quintupled on a year-to-year basis for the first nine months of 2010, and the company posted a strong double-digit top-line advance during the same period. Meanwhile, management has concentrated on capturing additional market share, and we believe that Skechers will try to widen its global footprint in the coming months. Too, it ought to continue to build brand awareness and may turn to new lines of business. To this end, the company is pursuing licensing agreements to produce backpacks, tote bags, and other leather goods. Indeed, new offerings have been gaining traction. Rebounds in the retail markets, coupled with the popularity of its new and classic product lines, likely underlies much of the company’s recent success.
After reaching new highs in the middle of this year, these shares sold off steeply. However, we feel the decline was a bit overblown, and that management’s recent efforts will help pave the way for long-term earnings growth. Consequently, Sketchers stock offers healthy appreciation potential out to 2013-2015.
China-Biotics, Inc. (CHBT) is a Chinese-based company that engages in the research, development, and marketing of probiotic dietary supplements. Its product portfolio contains live microbials made with proprietary technology. It distributes its over-the-counter products under the “Shining” brand to more than 1,000 pharmacies and 100 supermarkets in Shanghai, Jiangsu, and Zhejiang, and over the Internet. The company also supplies probiotics as bulk additives.
The company got off to a healthy start this year, and we envision that it will continue to perform nicely in the coming months. Streamlining initiatives, such as store closures, ought to boost margins going forward. Moreover, this scale-back effort has led management to bump up its digital presence. All told, we think that online sales will be a boon to the company’s business. Selling its dietary supplements over the Internet should help China-Biotics capture additional market share, especially overseas. We look for international expansion, particularly its venture into the U.S. market, to promote long-term growth. The rising popularity of organic food consumption, and general health-conscious dietary trends by consumers should augur well for its retail business. Too, its bulk probiotics distribution seems to generate healthy cash flow.
In sum, this stock, a newcomer to the Value Line Investment Survey, seems poised to hold its place on the year-ahead track. Yet, these shares may still have ample room to run over the 3- to 5-year pull, thanks to ongoing growth efforts.
Fairchild Semiconductor (FCS) designs, develops, and markets semiconductors that focus on providing discrete and analog power management and interface solutions. Its business is divided into three core segments: Mobile, Computing, Consumer, and Communication (MCCC); Power Conversion, Industrial, and Auto (PCIA); and Standard Products. The company operates four fabrication plants and three assembly plants.
Though, like many of its industry peers, Fairchild was hard hit by recessionary pressures and a difficult operating environment, the company has made a healthy comeback over the last few quarters. Beyond the economic recovery and improving demand for its products, Fairchild should end the year on a good note, thanks to management’s recent efforts. The company has been investing in its business, and will likely ramp up capital expenditures this year. It has turned to higher-margined products, and we think that its new array of offerings will help boost top- and bottom-line growth going forward. Its project queue, rich in technological innovation, should enable Fairchild to maintain its position in a highly competitive market.
All told, these moves should help the company succeed in the near term and set the stage for long-term earnings gains. Even with the stock’s recent run-up in price, it still offers good appreciation potential over the next 3 to 5 years.
To see the complete list of 16 stocks (limited to those ranked to outperform the broader market in the year ahead), investors can click here.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.