Jacobs Engineering Group Inc (J)

[sumisu]

Go With Growth

Friday December 12, 12:59 pm ET

ByTim Melvin, RealMoney.com Contributor

http://biz.yahoo.com/ts/081212/10452953.html?.v=1

Back in 2006, I spent the better part of a day playing around with a stock selection back-tester and found several of the value screens I use now, including the book value and dividend screens I often write about. Two others offered high returns as well, but were not true value screens.

I wanted to revisit them, so I ran them back through my quick and dirty back-tester to make sure they were still valid. Both still beat the market handily over the past five-, 10- and 20-year periods. Armed with this information, I ran the criteria through the value-line stock screener to see what names pop up.

One of the screens is a very simple growth screen that eliminates most accounting gimmicks and earnings manipulation while spotting companies that grow over long periods of time, not just this year's fad stock. The criteria are simple: Earnings must be growing in excess of 15% a year for the past 10 years and book value must have grown at close to that level or more, indicating that management is successfully reinvesting earnings and continuing to grow the company. The absolute level of book does not matter in this screen, just the growth rate.

I found some names that are worth a further look given the steep selloff in the market this year. These companies are having a tough time like everybody else, but management has proven they know how to grow over the long term.

A reader not long ago berated me for leaving Dell off my list of cash-rich companies and perhaps justifiably so: the company is flush with $6 billion in net cash, or about 25% of the current stock price. Dell also has a tremendous growth record -- according to my screener, the company has grown earnings over the past 10 years at 21% and reinvested the profits to grow net worth by 16%.

Most analysts feel Dell will continue to grow at a decent rate into the future. The company also could be a beneficiary of the new presidential administration's plan to wire schools, hospitals and communities. At less than 9 times earnings and an EV/EBITDA ratio of less than 4, the stock appears cheap. Michael Dell seems to think so, having purchased better than 5 million shares this year.

Tiffany's might be in the worst segment of the retail market: High-end jewelry is a luxury item that is expected to suffer in the months ahead. But the company easily makes the list of growth winners, growing earnings and net worth at 17% a year for the last decade. Tiffany's has doubled in price off the lows of the last recession.

The next few quarters could be tough for the third-largest jewelry retailer in the U.S., but over the long run, management has proven it knows how to execute. This is one that will probably go lower before it recovers, but it belongs on your watch list of great growth companies.

Manitowoc has been mentioned several times on RealMoney as a potential infrastructure play. Even without massive stimulus spending, the company has been a winner, growing earnings and net worth at better than 20% annually for the past 10 years. The company has more than $3 billion in its crane business and continues to expand into food services. Manitowoc has more cash than debt and trades for less than 2 times EV/EBITDA.

Some other long-term growth winners span a wide range of industry groups. Retailers Urban Outfitters and Buckle make the grade, as well as technology leaders Cisco and Oracle . Jacobs Engineering , yet another infrastructure company, passes the growth screen.

A screen is just a starting point. The market could experience further downside through at least the fourth quarter of next year -- trade accordingly and tiptoe into positions, or consider using LEAP call spreads to establish positions and limit risk. However, a list of proven winning companies is a good place to shop in a bear market.