The NFIB small business optimism index is a weighted composite of ten survey questions that serve as sentiment indicators for small businesses. The index has recently shown signs of turning up from its lowest levels in nearly a decade. As noted by Lance Roberts in last weekend’s Newsletter, the NFIB small business survey is a good proxy for returns of the Russell 2000 index. Thus, in light of improving confidence and relative underperformance of small-cap stocks compared to the S&P 500 YTD, we screen for opportunities in the small and mid-cap space this week.
We take a page from the playbook of a previous small and mid-cap growth screen in determining criteria. The main theme behind the criteria is to identify growth stocks with a track record of consistency. As we previously noted, “Measuring the R-Squared of the growth helps us exclude companies with high annualized growth rates due to one-off situations rather than consistency. A high R-Squared indicates companies with more reliable earnings or revenue growth.” We last ran this screen in early February, and only two of this week’s five stocks appeared in the previous screen (CRAI and ENSG).
Screening Criteria
We used the following screening criteria:
- Traded on the NYSE or NASDAQ
- Market Cap Between $500M-$10B
- Price/Book Value Ratio > 2.5
- 3-5y EPS Growth Mean Estimate (Annualized) > 12%
- Sales 5y Trendline Growth Rate > 8.5%
- Sales Growth 5y R-Squared > 0.9
- EPS 5y Trendline Growth Rate > 12.5%
- EPS Growth 5y R-Squared > 0.9
Company Summaries
CRA Intl. (CRAI)
Ensign Group (ENSG)
Insight Ent. (NSIT)
Repligen Corp. (RGEN)
Sterling Infrastructure (STRL)
Five for Friday
Five for Friday uses stock screens to produce five stocks that we expect will outperform if a particular investment theme plays out in the future. Investment themes may be relevant to the current or expected market, industry and/or economic trends. Investment themes may not always represent our current forecast.
Disclosure
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.
Follow Michael on Twitter or go to 720global.com for more research and analysis.
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