It Takes Both Growth AND Value To Succeed

Growth Investors focus on companies with great earnings growth.

And while some stocks gained by just by beating dreary expectations in this recent earnings season - that isn’t going to cut it forever.

Especially since earnings growth is down roughly 35% from last year at this time.

Value Investors focus on low valuation metrics, such as low P/Es.

But it’s getting harder to do that with P/Es on the upswing lately. In fact, P/Es are up roughly 27% within just the last few months, since the lows were established in March.

For those companies that still have low P/Es, many are low because they lack any real earnings power. And people aren’t willing to pay up for these stocks because there’s nothing to pay up for.

So I think the smart way to play going forward is to look for both good growth and good value.

It’s the best of both worlds and will improve your odds of success in this market.

Screen

The screen I’m running this week looks for both growth and value.

It focuses on companies with the highest growth rates and the lowest P/E ratios at the same time.

It starts off by looking at:

• Companies with one year Projected Growth Rates to be in the top 20 percentile of all companies.
  (Using a Uniform Rank of 1-99 (99 being the best growth rates), I screened for stocks ranked 80 or better, meaning better than 80% of all the other companies out their in terms of growth rates.)
• Companies that also happened to have the lowest forward P/Es - lower than 80% of all other companies.
  (Again, using a Uniform Rank of 1-99 (this time 99 having the lowest P/Es), I screened for stocks ranked 80 or better, meaning companies with P/Es lower that 80% of all the other companies out there.)
• They all have to have a Zacks #3 Rank or less.
  (Meaning no ‘Sells’ or ‘Strong Sells’ allowed.)
• And this was all applied to stocks trading at or above $5, with average daily trading volumes of 100,000 shares or more.

Here are 5 stocks from this week’s screen (5/12/09):

Alliance Resources Partners LP (ARLP)
Brasil Telecom (BRP)
The Pantry, Inc. (PTRY)
Sepracor, Inc. (SEPR)
Exide Technologies (XIDE)

This screen is an excellent way to find good growth companies that also have low valuations.

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