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Stock Screen: Stocks with High Marks for Price Growth Persistence and Stock Price Stability
The last bit of data that a reader will encounter when making their way down the Value Line page are our proprietary scores for Stock Price Stability, Price Growth Persistence, and Earnings Predictability. These can be found at the bottom, right corner of the page, just below a company’s Financial Strength rating. (For a description of how we calculate these numbers see this link.) Used in conjunction with our stock screener tool, this data can be used by an investor to quickly identity a subset of stocks that are likely to meet his/her particular investment style.
This week, for instance, we ran a screen to pinpoint stocks that get high marks for both Price Stability and Growth Persistence. Such a group would obviously appeal to those seeking shares of companies that possess an established track record of attractive returns without exposing shareholders to wide price swings. Out of a universe of roughly 1,700 stocks, less than 50 had scores of 90 or above (on a scale from 5 to 100) on both of these measures. On the positive side, this group of equities did not appear to be prohibitively expensive—the median P/E of 16.8 was only modestly higher than the broader market’s 16.1. However, most of these stocks offer below average appreciation potential to 2015-2017, which is not especially surprising after an extended period of healthy share-price gains. (Our Growth Persistence statistic is based on up to 10 years of data.) Nonetheless, on a risk-adjusted basis, a number of equities still appear to possess worthwhile upside potential for the next several years. We highlight two of these below.
AmerisourceBergen (ABC) is one of the larger companies in the Medical Supplies (Non-Invasive) Industry, with a market capitalization just north of $10 billion. It is a full-service wholesale distributor of pharmaceutical products and related healthcare services. This is a relatively low-margin business, but the company’s sizable revenue base, about $80 billion in fiscal 2012, produces a healthy and fairly predictable profit stream. (Fiscal years end on September 30th). Last year, earnings reached a record high of $2.79, up 10% from the prior year, despite a stagnant top line. We expect revenue growth to resume in 2013, powering a low double-digit advance (roughly 13%). Contributions to the top line from recent acquisitions and new generic launches, as well as improving margins and a reduced share count, are among the factors that should work in the company’s favor in the year now under way.
Meanwhile, AmerisourceBergen’s strong operating cash flow should provide it the financial flexibility to pay down debt, while also returning additional cash to shareholders through continued stock buybacks or future increases in the dividend. During the fall, the company hiked its quarterly dividend by 62%, to $0.21 a share. Even with this move, the annual payout figures to be fairly modest at less than 30% of expected 2013 profits.
Overall, ABC stock looks to provide investors with the opportunity for worthwhile, risk-adjusted total return to 2015-2017. The dividend yield is slightly below par, relative to the typical dividend-paying equity, but payouts should increase at a faster rate than inflation. Meanwhile, these shares appear positioned to generate good price appreciation over the next 3 to 5 years, and the Safety rank of 2 (Above-Average) suggests the risks here are fairly moderate.
Praxair, Inc. (PX) competes in the Chemical (Specialty) Industry and is the world’s second-largest supplier of industrial gases. The company’s products, which are used by customers in a variety of industries, including metal fabrication, primary metals, chemicals, and gas, generate about $11 billion in annual sales. Recent results have been underwhelming, which has prompted us to cut back our sales and earnings estimates for 2012 and 2013. Sales and earnings for the December quarter, which should be available on January 23rd, are likely to be in-line or slightly below those from the prior-year period. Still, business appears to be holding up well enough overall to support a 10% earnings advance in the year now under way. Sales in North America, for instance, have remained healthy, and the company also figures to see some benefits from its efforts to push into new markets in Asia.
Overall, we think PX stock is likely to provide shareholders with worthwhile total returns in the three to five years ahead. This includes income from dividends. This year’s expected payout currently represents a yield of 2.2%, which is in-line with the Value Line median for dividend-paying equities, and we expect rising earnings to push distributions ahead by more than 10% a year between now and 2015-2017. Meanwhile, consistent with its high mark for Price Stability, the stock carries an Above-Average rank (2) for Safety, meaning conservative investors should be fairly comfortable with the level of risk here.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.