High Returns, Fast Growth, and Cheap Valued

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Are you interested in growth businesses that currently deliver high returns for shareholders? I am, especially if those businesses are quite reasonably priced in the stock market. I recently ran a screen of stocks for both long-term growth and value investors. The screen contains six main criteria: (1) the market capitalization is greater than $20 billion, (2) the return on invested capital is higher than 25%, (3) the net margin is higher than 20%, (4) EPS annualized growth rate for the previous 10 years is more than 15%, (5) those businesses are paying out dividends, and (6) the price-earnings ratio is below 15x. Here are the top 3 results:

Southern Copper Corporation (NYSE: SCCO) is one of the largest producers of copper globally, with around 74% of its revenue coming from copper. SCCO is considered to have the largest copper reserves in the world, with around 58.8 million tons of contained copper at the end of 2011. Since 2004 the company has managed to deliver sustainable double-digit net margins and returns on invested capital. Trailing twelve months, its ROIC was nearly 24%, along with the net margin of 29%.  From the period of 2002 – 2011, its EPS has grown from $0.13 to $2.73, marking a remarkable annualized growth of 35.6%. SCCO has a decent history of paying consistent dividends over the last 10 years. Currently, SCCO is trading at $36.30 per share, with a total market capitalization of $30.69 billion. The dividend yield seems to be quite juicy at 10.2%. The business is valued at 14.7x forward earnings.

Infosys (NYSE: INFY) is the provider of end-to-end business solutions, including business consulting, technology, and outsourcing services in more than 30 countries. Its business was established based on the India’s competitive advantage of an offshore outsourcing tech services for global corporations. The business has delivered remarkable return on invested capital and enjoyed very high net margins consistently over the last 10 years. In the past 12 months, it had 24.8% net margin and delivered nearly 27.5% return on invested capital. The earning per share has grown at an annualized rate of 15.2%, from $0.73 in 2002 to $3.00 in 2012, along with the growth in dividends from $0.05 per share to $0.70 per share in the same period. Infosys is trading at $44.45 per share, with a total market capitalization of $25.4 billion. The dividend yield to investors is 1.5%, and it is valued at 13.4x forward earnings.

Apple (NASDAQ: AAPL) is the designer and maker of the popular iPhone and iPad and other mobile communication devices. Its products, as well as its shares, are quite popular among users and investors these days. Apple has consistently delivered double digit returns on invested capital since 2005. In the last 12 months, the net margin was nearly 26.7% and its return on invested capital was more than 42.8%. Apple can be considered one of the fastest growing companies in the world when it increased its EPS from $0.10 per share in 2003 to $44.15 per share in 2012, marking a breathtaking annualized growth of more than 83.8%. Apple didn’t pay any cash dividends until the third quarter 2012. The dividend yield is now 0.9%. It is currently trading at $585.28 per share, with a total market capitalization of $550.57 billion. The market seems to price this growing company cheaply at only 9.5x forward earnings and only 0.5x PEG.

My Foolish Take

With historically high returns and profitability, growing EPS, dividend payment and cheap valuations, I think investors could sleep well at night holding the three stocks mentioned above. Infosys, with its strong foundation and establishment in the outsourcing and solution business, would continue to thrive in the future. Apple, with its very popular integrated software and hardware, including mobile communication devices, seems to be valued the cheapest among the three.

 


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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