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MARCH 28, 2001

INVESTING FOR GROWTH

Twelve Steps to Finding Growth Stocks
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I have translated my 12 growth criteria to BusinessWeek Online's Advanced Stock Screener. Following is the search methodology I used.

To get to the screener, go to BusinessWeek's Online Investing channel (or click on the tab at the top of the homepage that says "Investing"). From the Investing page click on "Tools and Scoreboards" in the lefthand column. On the Tools page, click on "Stock Search." When that comes up, click on "Advanced Stock Search." Fill out the screener as follows:

Stock
Relative Performance: 1 Wk-"High As Possible," or you could calculate the relative performance of the S&P 500, when you run the screen. Click on "Relative Performance" to understand how to do this. This kind of momentum stuff works best in the short term.

Valuation
Company Growth Ratio: Minimum 1, No Maximum. This stat is the inverse of the PEG ratio. Make sure the "1" is the minimum, not the Maximum
Company/Industry Growth Ratio: Minimum 1
Current Ratio: "High As Possible"
Price/Book Ratio: "Low As Possible." A relative stat, no Minimum or Maximum
Price/Sales Ratio: "Low As Possible." Same as P/B

Company Fundamentals
Cash Flow Growth 1 Yr: Minimum 15%, no Maximum
Debt/Equity Ratio: "Low As Possible." A relative stat, no Minimum or Maximum
EPS %Change Last Qtr: Minimum 15%, No Maximum
EPS Growth 1 Yr: Minimum 15%, No Maximum
EPS Stability Current: "High as Possible," No Maximum
Proj. EPS Current Fiscal Yr: Minimum 15%
Proj. EPS Annualized 5 Yr: Minimum 15%, No Maximum
Return on Assets: Minimum 15%, No Maximum
Sales Growth 1 Yr: Minimum 15%, No Maximum
Sales Increase Last Qtr: Minimum 15%, No Maximum
Turnover - Inventory: "High as Possible"
Turnover - Receivables: "Low as Possible"


Number of Stocks
Click on 150

After running this screen, on Mar. 19, I found 76 stocks. They're listed in alphabetical order below. The next step would be to look at the individual names and see how well they fit more qualitative criteria: management, industry position, economic outlook, etc. Many of the stocks fall in the small- and mid-cap range. This is where the best bargains for growth stocks are right now.

If you wanted to adjust the screen to include more large companies, you'd have to ease up on the valuation criteria. The Company Growth ratio stat could be lowered to 0.5. Relative valuations for large-cap names vs. their individual industries could be used, as opposed to absolute low P/B or P/S ratios.



By Lewis Braham in New York

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