Midsize Stocks - A Good Choice for Anyone's Nest Egg

It isn’t easy to find a stock that has the magic — an enticing financial elixir that combines stability with the promise of a decent rate of growth.

• Large-company stocks are relatively stable but move too slowly for many investors. 
• Small-company stocks’ value can rise quickly but could be seen as a gamble at a time in which investors aren’t exactly excited by the notion of taking on added risk. 

Say the experts: Find the middle. “The $2 billion to $7 billion market-cap range is really a sweet spot in the market,” says Don Easley, portfolio manager of the T. Rowe Price Diversified Mid-Cap Growth Fund.

“There are a lot of interesting companies in that area and there’s certainly a place for mid-caps in anyone’s portfolio.”

Stocks at these midsized companies aren’t called the“sweet spot”without reason. Indeed, the class of stocks that not too many years ago were classless — lumped in with large-cap stocks — has outperformed their larger and smaller peers. 

BetterInvesting uses annual revenue to determine a company’s category.

• For instance, midsized companies have annual revenues between $500 million and $5 billion. 
• Small companies have revenue below $500 million and 
• large-company revenue weighs in at more than $5 billion.

http://www.betterinvesting.org/NR/rdonlyres/9D3D3176-4E81-4D5D-90F7-19879D031A6A/0/cs.pdf

Screening for Mid-Size Companies

The companies screened should satisfy the following conditions:

1.  Past performances

• trailing-12-month revenues of between $500 million and $5 billion;
• five-year sales and earnings growth of at least 12 percent.

2.  Projected future performances

• forecasted five-year annual earnings and sales growth of 12 percent; and 
• a projected annual total return for the next three to five years of at least 12 percent. 

Also, look for Financial Strength and Earnings Predictability. 

As with any stock screen,this is just a starting point for research; no investment recommendations are intended.

Also, make sure any company of interest looks suitable on a Stock Selection Guide using your own judgments.

Share Screener

http://money.ninemsn.com.au/shares-and-funds/share-finder.aspx

Top Value
This gives us the first cut of candidates for our Aspect portfolio. It shows all companies with a Value Rank of 1 or 2. We exclude the highest risk companies by specifying only companies with a Risk Rank of 4 or better.

Turnaround Stocks
This gives us the first cut of candidates for our Aspect portfolio. It shows all companies with a Value Rank of 1 or 2. We exclude the highest risk companies by specifying only companies with a Risk Rank of 4 or better. A number of our highly ranked value stocks are companies that have had poor returns but have strong growth forecasts. This query returns all companies with a Value Rank of 1 or 2, with negative total returns in the last year and with a two year forecast growth above 20%.

Large Cap Comparison
Want to see how the big boys stack up on Value? This query ranks all companies with a market capitalisation greater than $1 Billion and displays their current Value rank.

Aspect Ranks for all companies
This query will list all companies in our database with each of our four ranks displayed against each stock.

Growth at a Reasonable Price
If the thought of investing in turnarounds makes you a bit queasy this query, which focuses on stocks with a strong growth track record, might be for you. These are top value stocks with EPS growth over the last five years above 15% and forecast growth above 20%.

Low PE Bottom trawlers
Run this screen to see all stocks with a PE less than 10 and a PEG less than 1. These stocks are cheap! Mind you it might be for a good reason so make sure you investigate our profiles first.

Forecast Finder
Want to know the consensus forecast for a company? Run this query to see all companies, their current Earnings per share, and the forecast for the next two years.

The Bank Analyser
Run this query to see all banks with a number of key measures against each one, including five year return, dividend yield, net interest margin, cost to income ratio and our own Value rank.

Top Income and Growth
If you are an income investor then try out this query. This lists all stocks ranked 1 in income. We still want good value, however so we exclude stocks with a Value Rank of 4 or 5.

The concept and purpose of using Screen and Standards in Stocks Selection

As you begin the process of culling your universe of stocks down to a useful list, think about the qualities you find in your candidates in terms of screens and standards.

 

Screen

 

A screen is any element of a security that would eliminate it from further consideration, for example, the absence of a dividend.

 

The purpose of a screen is to limit your universe of stocks to a manageable list of candidates. 

The concept of using a screen to narrow our choices is a familiar part of daily life.  For example:

• people with food allergies can't eat certain dishes, no matter how delicious they are.
• we only read books written in languages we understand, and
• when we shop for clothing we start by looking for clothes that will fit.  After all, it doesn't matter how nice an item is if it's not the right size.

Screens help us discard all the possibilities that, no matter what else they may have to offer, just don't meet our needs.  Any stocks that fails to meet one of your screens simply won't be on your list of candidates.

 

 

Standards

 

Standards are those criteria by which you will compare one security to another when both of them pass your screening process in order to select your perferred choice. 

 

The purpose of standards is to help you decide which stocks on your list of candidates to invest in. 

 

Returning to our shopping example, once we narrow our choices to those items that are the right size we can try them on to see which ones fit the best.  There are other clothing standards in addition to fit such as color, style, quality, and price that we can use to compare our finalists when deciding which ones to buy.

 

The stocks that pass through your screens will be ranked according to a variety of investment standards to help you find those candidates on your list that appear to offer the most promising fit for your dividend portfolio.


Sometimes a measurement you use as a screen to shorten your list will also be used as a standard to rank your choices. 

The most obvious screen you'll be running your universe through is the size of the dividend yield.  If you've set your minimum dividend yield at 2.25%, then a stock with a yield of 3% and another stock with a yield of 4% would both pass the dividend screen you've set and be added to your list of candidates. 

Later, when ranking your candidates to decide which ones to buy, you can use the dividend yield measurement again - but this time as a standard.  On the basis of the dividend yield standard, the 4% stock would rank higher than the one with a yield of 3%.

How high the dividend yield should be to pass through your screen depends largely on

• how much income you need to take from your portfolio, and
• how much risk you're comfortable assuming. 

If you haven't stopped to address these two important factors, now would be a great time to do so.