By Arie Goren :Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
It is possible to judge whether a stock is trending up or down by comparing its current share price with its moving average. Stocks trading above their moving averages are considered to be in an uptrend, and those trading below their moving averages are considered to be in a downtrend. The distance that a stock is trading above or below its moving average reflects the trend strength. The 200-day moving average is used for measuring long-term trends, the 50-day moving average is used for measuring mid-term trends and the 20-day moving average is used for measuring short-term trends.
I have searched for profitable high-growth dividend companies with zero debt and which are in an uptrend. These kinds of stocks offer limited downside and provide also an income.
I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.
The screen's formula requires all stocks to comply with all following demands:
- Average annual earnings growth estimates for the next 5 years is greater than 18%.
- Price to free cash flow is positive.
- Total debt is zero.
- The PEG ratio is less than 1.20.
- Dividend yield is greater than 2.0%.
- Stock price is above 20-day simple moving average (short-term uptrend).
- Stock price is above 50-day simple moving average (mid-term uptrend).
- Stock price is above 200-day simple moving average (long-term uptrend).
After running this screen on December 11, 2012, before the market open, I obtained as results the three following stocks:
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Alliance Fiber Optic Products Inc. (AFOP)
Alliance Fiber Optic Products, Inc. designs, manufactures, and markets various fiber optic components and integrated modules for the optical network equipment market.
Alliance Fiber Optic Products has no debt at all and the forward P/E is quite low at 13.06. The PEG ratio is very low at 0.87 and the price to free cash flow for the trailing 12 months is quite low at 13.99. The average annual earnings growth for the past five years was very high at 46.07 and the average annual earnings growth estimates for the next five years is also very high at 25%. The forward annual dividend yield is at 2.18% and the payout ratio is 47.2%. The stock price is 9.61% above its 20-day simple moving average, 22.05% above its 50-day simple moving average and 36.84% above its 200-day simple moving average. Only two analysts are covering the stock; both analysts rate it as a strong buy. On October 25, Alliance Fiber Optic reported its 3Q financial results (here). Revenue for the third quarter of 2012 totaled $12,390,000, a 8% increase from revenue of $11,527,000 reported in the previous quarter, and a 5% increase from revenue of $11,778,000 reported in the third quarter of 2011. The company recorded net income for the third quarter of 2012 of $1,892,000, or $0.22 per share, compared with $1,232,000, or $0.14 per share for the second quarter of 2012. This compares with net income for the third quarter of 2011 of $1,454,000, or $0.16 per share. The compelling valuation metrics, the strong growth prospects, the analyst's recommendation and the impressive 3Q financial results ; all these factors make the AFOP stock very attractive.
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Hot Topic Inc. (HOTT)
Hot Topic, Inc., together with its subsidiaries, operates as a mall and Web-based specialty retailer in the United States.
Hot Topic has no debt at all and the forward P/E is at 19.24. The PEG ratio is quite low at 0.99 and the price-to-sales ratio is very low at 0.58. The price to free cash flow for the trailing 12 months is at 24.39 and the average annual earnings growth estimates for the next five years is very high at 26%. The forward annual dividend yield is quite high at 3.26% and the payout ratio is 79.7%. The stock price is 3.73% above its 20-day simple moving average, 7.30% above its 50-day simple moving average and 4.34% above its 200-day simple moving average. Analysts recommend the stock, among the six analysts covering the stock, two rate it as a strong buy, three rate it as a buy and only one rates it as a hold. On November 14, Hot Topic reported its 3Q financial results (here). The company reported net income in the third fiscal quarter of $4.3 million, or $0.10 per share, compared with net income of $3.1 million, or $0.07 per share, for the comparable period last year. Total sales for the third quarter of fiscal 2012 increased 2.0% to $179.4 million compared with $175.8 million for the third-quarter last year. Total company comparable sales increased 0.2% for the third quarter of fiscal 2012. The cheap valuation, the strong growth prospects, the analyst's recommendation and the rich dividend; all these factors make the HOTT stock quite attractive.
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Chart: finviz.com
Robert Half International Inc. (RHI)
Robert Half International Inc. provides staffing and risk consulting services in North America, South America, Europe, Asia, and Australia.
Robert Half International has no debt at all and the forward P/E is at 16.53. The PEG ratio is quite low at 1.17 and the price-to-sales ratio is also quite low at 1.02. The price to free cash flow for the trailing 12 months is at 26.84 and the average annual earnings growth estimates for the next five years is quite high at 18.2%. The forward annual dividend yield is at 2.04% and the payout ratio is 43.6%. The stock price is 6.84% above its 20-day simple moving average, 9.75% above its 50-day simple moving average and 5.84% above its 200-day simple moving average. On October 18, Robert Half International reported its 3Q financial results (here). For the quarter ended September 30, 2012, net income was $57.7 million, or $0.41 per share, on revenue of $1.03 billion. Net income for the prior year's third quarter was $44.2 million, or $0.31 per share, on revenue of $984.7 million. Harold M. Messmer, Jr., chairman and CEO of Robert Half International said:
We were pleased with the company's operating performance during the third quarter. For the ninth consecutive quarter, U.S. staffing revenues saw double-digit, year-over-year growth rates. In addition, global operating income grew by 31 percent with higher gross margins; lower selling, general and administrative expense ratios; and strong Protiviti results.
The strong growth prospects and the impressive 3Q financial results ; all these factors make the RHI stock very attractive.
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Chart: finviz.com
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