3 stocks on growth trajectories
A stock screener and the wisdom of the crowds combine to identify a trio of growth stocks with big potential.
By Dave Mock, The Motley Fool
Investors are always hunting for the next big thing -- that dream stock whose price multiplies when it's finally discovered by the market. It's easy to look back and discover the 10 best stocks of the past decade, but I'm more interested in the tools that can help me evaluate tomorrow's greatest companies.
MSN CAPS offers a variety of resources to aid in finding those future leaders. Our 140,000-member community is organized to help investors beat the market. CAPS participants have rated more than 5,400 stocks, awarding five-star ratings to the companies that command the greatest confidence.
Each stock's CAPS page is a good place to start your research; you can find a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made. Turn to member blogs for further insight and opinion. And the CAPS Stock Screener tool helps you find companies that satisfy your investment criteria.
We used the tool to screen for growth companies that satisfy the following criteria:
- A market cap of at least $500 million.
- A trailing three-year earnings-per-share growth rate of at least 25%.
- A trailing three-year revenue growth rate of at least 25%.
- A price-to-earnings ratio of less than 25.
We then tapped the collective intelligence of our CAPS members to see whether these companies present real opportunities -- or if the numbers fail to tell the true story.
Here are three of the stocks returned by the screen:
Diana Shipping (DSX) is a Greek operator of a fleet of 20 dry bulk carriers that transport iron ore, coal, grain and other cargo. Over the past three years, its rate of earnings-per-share growth is 29% and its rate of revenue growth is 50%. At CAPS, the stock has a five-star rating.
Shanda Interactive Entertainment (SNDA) is a Chinese provider of digital content, including music and video games. Over the past three years, its rate of earnings-per-share growth is 114% and its rate of revenue growth is 32%. At CAPS, the stock has a four-star rating.
Ebix (EBIX) is an Atlanta company that sells software and services to the insurance industry. Over the past three years, its rate of earnings-per-share growth is 63% and its rate of revenue growth is 43%. At CAPS, the stock has a four-star rating.
A closer look at each stock
Many CAPS members see Diana Shipping as a safer bet than rivals such as DryShips (DRYS), with greater potential to weather the bleak economy and prosper once things turn around. Diana has a manageable amount of debt compared with its cash balance, and the company has managed to maintain a high fleet-utilization rate with the help of its long-term charters.
Of the 2,290 CAPS participants rating this stock, 97% expect it to outperform the market.
Shanda Interactive's revenue grew 48% in the second quarter, thanks to the booming Chinese gaming sector. But the main driver of its revenue was recently spun off into Shanda Games (GAME), in a move similar to Sohu.com's (SOHU) spinoff of Changyou.com (CYOU).
Since the IPO, Shanda Interactive has been left with a lot more cash, but it retains a sizable 71% stake in the stand-alone gaming company. Shanda Games expects big revenue growth over the next five years and looks to outpace the industry.
A solid contingent of CAPS members still sees upside potential for Shanda and expects it to put its cash to good use; 96% of the 917 members rating Shanda Interactive remain bullish.
Even as the global economic storm has punished insurance companies such as AIG (AIG) and Allstate (ALL), Ebix has flourished. It reported solid second-quarter numbers across the board, and CAPS members like its potential as it adds capabilities for its customers.
Ebix's software helps insurance companies and brokerages manage their businesses more efficiently, and the company holds a strong competitive position.
Ebix expects to add to its earnings with the recent acquisitions of E-Z Data -- a leader in the fast-growing market for on-demand customer-service-management products -- and Peak Performance Solutions. These moves allow Ebix to expand its offerings in the financial services industry and give the company increased access to international markets. Today, nearly 97% of the 582 CAPS members rating Ebix believe it will beat the broader market.
The collective wisdom of a huge pool of investors can help give context to a page of numbers from a stock screen. But individual investors are still the best judges of what to do with their own money. Happily, it's easy to chime in with your own opinion. If you agree that these companies present dream opportunities -- or see more of a nightmare instead -- share your thoughts. It can make a difference.
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Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
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