Fast Growers Should Outperform

Many analysts are forecasting strong U.S. economic growth for 2013. If that happens, growth stocks will outperform the overall market. These are stocks that are growing sales and earnings at least 15% annually compared to 5% or so for most stocks. All else equal, share prices typically track earnings, which is why fast growers usually outperform other stocks.

Stock screeners are programs that you can use to scan the market for stocks meeting your selection criteria. Around this time last year, I described how to find growth stock candidates using the free and user-friendly screener provided by FINVIZ.com. The six stocks turned up by that screen averaged a 27% return over the last 12 months compared to the S&P 500’s 16% return. Last week I ran the screen again, and this time it turned up five growth candidates. Here’s how you can use FINVIZ to see which the screen turns up today.

Start by selecting Screener on the FINVIZ homepage (finviz.com). FINVIZ offers more than 60 filters that you can use to pinpoint stocks meeting your selection criteria. On the Filters menu, select “All” to display all of the available filters. Use the associated dropdown menus to select the desired filter values.

Fast Growers

The best growth candidates have a strong recent sales (revenue) and earnings growth track record. Use the “Sales Growth Past Five Years” and “EPS Growth Past Five Years” filters and specify “Over 15%” for each.

Accelerating Growth

Strong historical growth isn’t enough. For viable growth candidates, the market must expect the firm to grow sales and earning even faster in future years (that’s where Apple fell short last week). For that, we must rely on stock analysts’ forecasts. Use the “EPS Growth Next Five Years’ filter and specify “Over 20%.” Unfortunately, FINVIZ doesn’t offer a filter for forecast revenue growth.

Positive Sentiment

Viable growth stock candidates must be “in-favor” with most market players. Here again, we’ll rely on stock analysts. They issue buy/sell ratings on the stocks that they cover. FINVIZ compiles them into five categories: strong buy, buy, hold, sell and strong sell. Obviously, for stocks to be in-favor, analysts must be advising buying. Use the Analyst Recommendations filter and specify “Buy or better.”

Don’t Pay Too Much

Low Debt

High debt firms are always riskier than those with little or no debt. The most widely used debt measure is the debt/equity ratio, which is total debt divided by shareholders equity. Zero ratios mean no debt and the higher the ratio, the higher the debt. Use the Debt/Equity filter and specify “under 0.1.”

Uptrending Stock Price

Growth candidates must be in uptrends, meaning that, despite occasional dips, the share price is generally moving up. Comparing a stock’s share price to its moving average (average closing price over a specified number of days) will tell you which way a stock is trending. Uptrending stocks are trading above their moving averages, while downtrending stocks are trading below.

The 50-day moving average gauges short-term price action, and the 200-day MA measures longer trends. Passing stocks should be trading above both moving averages. Use both the 50-Day and 200-Day Simple Moving average filters and specify “Price above SMA” for each.