5 Fast-Growing Mid-Cap Stocks With No Long-Term Debt

Genia Turanova's picture

Friday, November 9, 2018 - 12:00am

by Genia Turanova

Stock screens are a powerful tool. While they won't serve as a substitute for full-fledged stock research, often they can provide a promising idea or two for a watch list. And many of those watch-list ideas can, in turn, become full-fledged recommendations.

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The stock screen that follows seems to have generated at least a couple of such promising ideas.

But let's start at the beginning. To accommodate the mission of Fast-Track Millionaire -- that is, finding stocks that can greatly outperform the market -- I started this screen with the S&P 400 Mid-Cap index.

Here's How I Set Up This Screen
As the name implies, the S&P 400 index was created specifically with mid-sized companies in mind. These are the companies that have already outgrown the small-cap index. This means, for many of them, that they have successfully made it through the riskier part of any company's life cycle -- capital raise and initial growth. These companies, because they are smaller in size than large-caps, have ample room for growth and share-price appreciation.

In terms of size, the S&P 400 universe hits my sweet spot: to become an index member, a company must have a market capitalization between $1.6 billion to $6.8 billion. Also, importantly, its stock must be highly liquid, with at least half of its market cap available for trading. Plus, to gain entry, companies must be financially viable -- that is, they must have positive earnings in the most recently reported quarter, as well as positive earnings over the latest four quarters (summed together).

The next step in my screen: the fastest-growing companies from that index. This time, I screened not for expected growth, but for growth already-reported growth -- i.e. the fastest annual per-share profit growth as of the latest quarter. This metric, while not perfect, allows me to screen for some of the fastest-growing companies in the market.

My third metric in this screen is long-term debt -- or, rather, the absence of thereof. With the U.S. Federal Reserve poised to continue on its rate-rising path, I sought to find a few moderately-sized, fast-growing, attractively valued companies whose growth wasn't funded by debt. And I did.

Here are the results.

(Note: Please keep in mind that the investing ideas I present here are intended to provide a good starting point for further research. As with any quantitative tool, my Fast-Track Millionaire stock screen should not be used in isolation. You need to evaluate other fundamental characteristics of every potential investment opportunity to determine if it is right for your portfolio.)

My Thoughts On The Results
I was pleasantly surprised to see Urban Outfitters (Nasdaq: URBN) and American Eagle Outfitters (NYSE: AEO) on the list. These two retailers are living proof that some brands can stay strong even against the onslaught of e-tailing, and their profit recovery and the absence of long-term debt put them in a positive column for future growth potential, too. I wouldn't bet against this pair at this time.

Here are two more interesting companies from this month's screen: Cognex (Nasdaq: CGNX) and Globus Medical (Nasdaq: GMED).

These stocks aren't cheap, but both companies are worth a second look. Shares of Cognex, a company that makes vision sensors and industrial barcode readers, change hands at about 29 times expected next year earnings, while the shares of Globus Medical, a highly innovative spine implant manufacturer, trade at an even higher multiple of about 34.

Why are these stocks expensive? Because both companies operate in high-growth industries and the market is telling us that profit growth for these companies might well surprise on the upside.

Only one of the top five companies on this month's screen is a biotech. Why is this surprising? Because many biotechs choose to fund their future not by debt, but by issuing equity -- and so, almost by definition, I expected to see at least several biotechnology companies on the list.

But the one that made it to the top of the screen, Exelixis (Nasdaq: EXEL), is interesting enough. It's a developmental-stage biotech working on finding a cancer cure for which it has partnered with immuno-oncology giant Bristol-Myers Squibb (NYSE: BMY). At this time, their futures -- at least when it comes to oncology -- seem to be tied. EXEL reported its next quarter results on November 1 (and I originally shared this screen with my Fast-Track Millionaire subscribers in late October), so I'd like to take some time to parse through the results to see if the company provided an update on some of its prospective drug candidates.

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Here's What I'm Looking At Now
I've devoted the past 17 years of my life to finding life-changing investing opportunities. After teaching university economics for nine years, I went to Wall Street. I helped manage a multi-million dollar portfolio... and since joining StreetAuthority, I've been averaging a 49.9% annualized return on my picks. That blows the market's 17.7% out of the water.

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Genia Turanova does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.