Stocks: Six Supercharged Standouts

These companies boast five-year histories of 25%-plus growth in three essential categories—and a high Fair Value ranking

by Michael Kaye From Standard & Poor's Equity Research

Equity strategists have rhapsodized about the strong earnings performance of U.S. companies, with Standard & Poor's 500-stock index posting 18 consecutive quarters of 10%-plus earnings growth. Opinions are divided as to whether the string may be broken with the 2006 fourth quarter.

The market's trepidation about the double-digit streak got us to thinking: Why worry? Why not look for stocks that have broken the 10% barrier without breaking a sweat over the long term? Or the 20% barrier, for that matter? We decided to aim even higher for this week's screen.

To find these overachievers, we scoured the S&P database. We searched for those issues with five-year histories of 25%-plus growth rates in three essential categories: earnings per share, sales, and return on equity, a widely followed measure of how efficiently a company deploys its capital.

To avoid speculative issues, we screened for stocks priced above $5.00 per share, and with market capitalizations of more than $1 billion.

And to ensure that these stocks were attractive from a valuation standpoint, we made them jump through one final hoop. We turned to S&P's Fair Value Model, which calculates a stock's weekly Fair Value—the price at which it should trade at current market levels—based on fundamental data such as corporate earnings and growth potential, price-to-book value, return on equity, and current yield relative to the S&P 500. We set our last filter to catch those issues with a Fair Value ranking of 5, which indicates that it is significantly undervalued vs. the entire universe of stocks in the Fair Value model.

When we finished crunching the numbers, a half-dozen names turned up:

Kaye, a chartered financial analyst, is an analyst for Standard & Poor's Portfolio Services. He is the author of The Standard & Poor's Guide to the Perfect Portfolio: Five Steps to Allocate Your Assets and Ensure a Lifetime of Wealth.