Go With Growth

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 (DELL - commentary - Cramer's Take) 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%.

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At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.