Mid Cap Growth

Goal/Rationale of the Screen

This screen looks for mid cap stocks with growth rates that are in the top 20% of their Industry. There are fewer mid caps stocks than there are small caps as not all small caps can succeed in growing themselves to this stage. But it can still be a crowded field. By focusing in on the top performers in their industry, you're keying in on the winningest stocks that are sure to attract strong investor interest. This screen also filters out the overpriced stocks by excluding those with too high valuations.

Criteria

Strategy

Every small cap company dreams of taking their business to the next level. And that next level is becoming a mid cap stock. Of course, just because a small cap stock grows into a mid cap, that's no guarantee of success. In fact, it can sometimes prove to be even harder. Some mid caps slide back into small cap status. While others get stuck, unable to grow much beyond what they've achieved. But there are plenty of others that make this part of their growth cycle just as exciting as when they were the new kids on the block. And by focusing in on the best performers in their industry, you're identifying the industry leaders and pacesetters, thus finding the ones with the potential to take their company to even greater heights and become the household names like so many other powerhouse stocks. Of course, valuations are important, and this screen adds two valuation metrics, namely the P/E ratio and the PEG ratio. Both are accommodating enough to allow and foster the continued growth rates that got these companies to where they are now. (Growth investors are typically willing to pay more for impressive growth today, believing that growth will cost them even more later on.) But the ratios are restrictive enough to narrow down these top performers to the ones with the most attractive valuations as well. And these lower valuations can help reduce the volatility and risk that can be associated with high growth stocks.

Things to Watch Out For

Just because a company is projecting big growth rates doesn't mean they will see those forever. Pay attention and monitor their growth trajectory. This screen looks at both the quarterly growth rates and the yearly growth rates. If your company misses on one of its quarters, dig deeper and find out why immediately. Stocks that post negative surprises have a tendency to post more negative surprises. Some growth stocks that are priced for perfection usually have high valuations. But even reasonably valued growth stocks can be hyper sensitive as well. Growth stocks require a watchful eye. So always monitor your watchlists and holdings.

Summary

This mid cap screen is a great way to find big growth stories without the additional risk commonly associated with smaller cap stocks and lesser known names. And by getting in on the top performers in their respective industries, with the better valuations, you know you're getting in on the best of the best. Your next 'favorite' growth stock might likely be found with this screen.