Today I searched for mid-cap stocks that are delivering strong profit margins and are expected to grow significantly in the next year. These stocks provide exciting opportunities and potential to outperform the market over the long term.
How to Find These Stocks
Profit margin over the past 12 months of greater than or equal to 30%
EPS growth in the next fiscal year forecasted at 30% or higher
A return on assets of greater than or equal to 10%
Three stocks that this screen produced are: Dynegy Inc. (NYSE:DYN), Randgold Resources Ltd. (ADR) (NASDAQ:GOLD), and Inergy, L.P. (NYSE:NRGY).
The following is a five-year price chart for these companies so that we can compare their performance against that of the S&P 500 for the same time period, in search of companies with the potential to outperform over the long haul.
Two of the three companies have outperformed the S&P 500 index over these five years. This performance does not include dividends or distributions, which add to their return.
The Electricity of Dynegy
Dynegy Inc. (NYSE:DYN) engages in the production and sale of electric energy, capacity, and ancillary services in the United States. The company sells electric energy, capacity, and ancillary services on a wholesale basis.
Dynegy Inc. (NYSE:DYN) is expected to lose 16 cents per share this year, but is expected to earn 3 cents per share next year. Over the next five years, it is expected to grow earnings by 7.6% annually.
In looking at the most recent balance sheet of the company for the quarter ending in March of 2013, it is strong. The company’s largest asset class by far is property, plant, and equipment. The company has $402 million in cash and total liabilities make up less than 50% of total assets. It has a large capital surplus of $2.6 billion.
In looking at its most recent 10-Q for the quarter ending in March 2013, there are some notable improvements from the year ago period. Revenue increased by 19% year over year. The company has emerged from bankruptcy, and these improved revenue numbers bode well going forward as the balance sheet is solid. It has $715 million in available liquidity including its revolving loan agreement and its cash on hand.
Is Rangold Golden?
Randgold Resources Ltd. (ADR) (NASDAQ:GOLD) engages in the exploration and development of gold deposits in Sub-Saharan Africa. It is part of the Nasdaq 100.
Randgold Resources Ltd. (ADR) (NASDAQ:GOLD) is an earnings machine. It is expected to earn $4.40 per share this year and $6.39 per share next year. Earnings per share a year ago, however, were $4.65 per share. Over the next five years, it is expected to have earnings growth of 8.5% per year.
The company has had expectations for earnings lowered recently though, and that definitely could be why the share price is trading toward the lower end of its 52-week range.
This company offers investors a chance at a stock that gives them exposure to emerging markets. It also is a company with high profitability, making it a less risky investment as it is a solid business. Furthermore, it offers a potential investor a chance at reaping the rewards if gold resumes its climb in price.
In looking at the company’s recent earnings announcement, there were positive events. Gold production increased in the quarter ending in March of 2013 compared to March of 2012. The Kibali mine was almost ready for operation at that point. Its dividend was increased by 25%, which improves shareholder return for long-term investors. Its annual production and cost guidance remained in line with what was forecasted earlier.