Investing in Today’s Market – Part 2 builds on Part 1 by translating the current macro backdrop into actionable stock ideas through a disciplined, long-term growth framework. The earlier analysis suggested there is no immediate recession risk, markets are modestly expensive, and interest rates will likely stay low into mid-2015 and perhaps beyond. When rates eventually move higher, the economy should tolerate the shift due to a built-in buffer. It also pointed to sectors that tend to perform well as rates rise, notably Financials, Health Care, Discretionary, Industrials, and Technology. In this Part 2 exploration, we deploy Stock Rover’s growth-oriented ranking screener to identify long-term candidates that fit a robust, debt-conscious growth profile, emphasizing companies with improving margins, expanding earnings, and sustainable capital structures. The goal is to surface stocks that can compound value over time without overreliance on debt financing, thereby helping investors weather rising rates with greater resilience.
Let’s Find Some Stocks
Overall, the long-term investing environment appears favorable: the economy is gradually accelerating, interest rates remain low, and a set of favorable cycles align to support a constructive backdrop for patient, fundamental investors. The focus will be on four core sectors—Healthcare, Discretionary, Technology, and Industrials—due to their historical alignment with the current cycle dynamics. We will also include Financials in the search, since banks and related firms often perform well when rates trend higher, which we anticipate at some point in the future. The search will emphasize companies that demonstrate balanced growth across sales, earnings, and operating income, while simultaneously improving efficiency and avoiding excessive debt financing that could be hit by rising borrowing costs.
Our screening approach targets firms that are expanding top-line growth and bottom-line profitability while also showing improvements in operating efficiency. The screening criteria are designed to filter out companies whose progress relies heavily on external financing or debt, and to highlight those with a prudent approach to capital structure. The screener behind this effort is called the Long Term Growth screener, and it embodies a set of filters built around growth, efficiency, and balance sheet strength. Below, we outline the core criteria and the rationale behind each group of filters.
Long-Term Growth: A Strategic Filter
To begin the process, we apply a series of filters that act as gatekeepers, removing any stocks that fail to meet the baseline requirements. The subsequent ranking stage then evaluates those that pass against a structured framework to assign a relative score. This section explains the rationale behind every group of criteria and why each component matters for long-horizon investing.
Preferred Sectors and Seasonal Cycles
As discussed in the cycle analysis of the earlier post, we are presently in a seasonally favorable window—often referred to as the November-to-May cycle. Historically, this period tends to outperform the May-to-November interval. Drawing on prior analyses, the screener is tuned to tilt toward sectors that have shown stronger performance in the latter half of the year and into the next cycle. The sectors identified as historically robust in this window are Healthcare, Discretionary, Industrials, Tech, and Financials. This tilt is designed to align stock selection with sectors that have demonstrated resilience and growth potential during the current cycle phase.
Size and Liquidity: Aligning with Market Realities
The approach recognizes the relative underperformance of small-cap stocks in the present environment and the tendency for smaller issues to carry higher valuations. As a result, the screener prioritizes mid-to-large cap stocks rather than small caps. The intent is to focus on companies with more established earnings streams and clearer growth trajectories, reducing the risk of volatility associated with smaller issues. Those seeking exposure to small caps can explore specialized resources or alternative webinars that specifically target that universe.
Key thresholds applied in this filter include:
- Market capitalization greater than $2 billion
- At least 250 employees (to ensure the company is a real operating entity rather than a shell or holding company)
- A minimum daily trading volume of 25,000 shares (to ensure sufficient liquidity for institutional participation)
These thresholds are chosen to balance growth potential with practical liquidity and corporate substance, helping to ensure investable opportunities for a long-term horizon.
Debt and Efficiency: Focusing on Sustainable Growth
In a long-term growth framework, it is crucial to avoid companies whose growth path is excessively financed by debt, as rising rates can erode profitability and add financial risk. The screener emphasizes firms that demonstrate improving efficiency and a commitment to reducing or stabilizing debt levels. Specifically, the criteria look for debt dynamics and efficiency improvements that signal a business strengthening its core operations rather than relying on leverage.
The debt and efficiency criteria include:
- Long-term debt to total capital not increasing in each of the last two years
- Net margin improving in each of the last two years
- Return on invested capital (ROIC) improving in each of the last two years
- A share count increase of no more than 2% over the last two years
These filters ensure the selected stocks exhibit strengthening profitability and efficiency without diluting shareholder value through disproportionate equity issuance, which can hamper long-term returns.
Long-Term Growth Screener Rankings
After applying the filters, the next step is to rank the surviving stocks to surface those with the strongest overall growth and resilience characteristics. The ranking component assigns a score to each passing stock based on several criteria that collectively reflect value, growth, efficiency, and balance sheet strength. It is important to note that the ranking feature described here is a premium capability of Stock Rover, but the underlying logic offers a clear framework for evaluating potential long-term compounders.
Valuation (35% Weight)
Valuation is weighted to favor stocks that appear reasonably priced relative to their growth and earnings potential. The framework prioritizes lower multiples where appropriate, recognizing that a lower multiple can indicate a more attractive entry point if growth trajectories justify the valuation.
The key valuation metrics include:
- P/E (10% weight): Prices-to-earnings, where lower values imply a less expensive stock for a given earnings level.
- EV/EBITDA (10%): Enterprise value relative to earnings before interest, taxes, depreciation, and amortization; this metric accounts for capital structure and can reward firms with more cash or less debt.
- Forward P/E (5%): Based on analyst expectations for future earnings, providing a glimpse into how the market anticipates growth.
- PEG Trailing (5%): Price-to-earnings growth based on trailing growth, rewarding stocks whose growth pace justifies the current multiple.
- PEG Forward (5%): Similar to PEG Trailing but uses expected growth, rewarding those with better growth prospects relative to their current price.
Lower values in these metrics generally result in higher rankings, all else equal.
Growth (35% Weight)
This segment focuses on core growth indicators, emphasizing top-line expansion and margin expansion that support sustained profitability.
The growth criteria include:
- 1-, 3-, and 5-year sales growth (10% total): Preference for stocks with stronger revenue expansion across multiple horizons.
- 1-, 3-, and 5-year operating income growth (10% total): Emphasis on EBIT growth, reflecting the profitability of core operations.
- 1-, 3-, and 5-year EPS growth (10% total): Focus on earnings per share growth, signaling improving profitability on a per-share basis.
- EPS next year change (5%): A forward-looking gauge of expected earnings growth, ensuring that the trajectory is not purely historical.
A higher growth score indicates a company that has demonstrated stronger and more consistent growth across multiple timeframes.
Efficiency (20% Weight)
Efficiency measures compare a company’s ability to generate income and profits relative to its peers, which is critical for long-term compounding, especially as rates rise.
The efficiency criteria include:
- Return on Assets (ROA) versus Industry (10%): Evaluates how effectively a company uses its assets to generate income in comparison with industry peers. This helps identify firms that outperform their sector in asset efficiency.
- Return on Equity (ROE) versus Industry (10%): Assesses profitability after accounting for leverage, again relative to industry norms. This highlights firms that deliver strong returns to shareholders when evaluated against peers.
The emphasis is on firms that show superior efficiency relative to their industry, signaling sound operating discipline.
Balance Sheet (10% Weight)
A robust balance sheet can cushion a business during periods of rising rates and tighter credit conditions. The balance sheet component elevates firms with stronger financial flexibility and liquidity.
Key balance sheet metrics include:
- Long-term debt to total capital (5%): Preference for a lower debt burden relative to total capital, indicating a more conservative financial structure.
- Net cash as a percentage of market cap (5%): Preference for companies with readily available cash, enhancing resilience and optionality during economic stress.
These balance-sheet factors help identify companies that have both the capacity to invest in growth and the fortitude to weather rate increases.
Practical Application and Access
This screener is designed to be downloaded and used within Stock Rover’s library, where the long-term growth criteria are embedded in a ranked framework. It’s also possible to apply the ranked screener to an existing portfolio to see how the holdings would rank under the same criteria. The approach provides a transparent, repeatable method to surface high-quality growth candidates aligned with a long-horizon investment thesis. While the ranking capability is a Premium feature of Stock Rover, the underlying principles remain accessible as a structured framework for evaluating growth stocks.
A watchlist containing the 50 top-ranked stocks that passed the November 5th filter is available for download from the library as well. This watchlist serves as a curated reference point for investors to track those candidates and compare results over time. The screener can be re-run at any time to reflect updated data and changing market conditions, enabling ongoing refinement of stock selection and portfolio composition.
Long-Term Growth Screener Results
With the Long Term Growth screener loaded, Premium users can execute the scan at any time to identify the top 50 ranked stocks. The interface supports interactive exploration, including the ability to hover over a stock rank to view the exact values for each criterion and the percentile relative to peers. This feature allows for a granular understanding of why a stock achieved its score and how it compares to the broader universe.
As an illustrative example, consider the stock that ranked first as of December 12th, 2014. The top-ranked stock demonstrated robust adherence to all the selection criteria, with consistently high percentile scores across valuation, growth, efficiency, and balance-sheet metrics. Its overall score reflected a balance between favorable valuation signals and meaningful growth in sales, operating income, and earnings, alongside a strong, asset-efficient, and debt-allocation strategy. The combination of these attributes underscores why it rose to the top of the ranking.
For Basic users, the ranking feature itself may not be visible, but the “Long Term Growth” watchlist remains accessible via the library. This provides a practical way to review the top 50 stocks as of November 5th, 2014, and to monitor how the passing stocks evolve over time as the screener is re-run. Periodic updates to the screener results are published, giving investors a reference point for comparing the performance of passing stocks across different measurement periods. This ongoing publication helps investors observe the durability of the screening approach and the persistence of potential investment ideas.
Summary
Taken together, the Part 2 framework leverages the insights from Part 1 to construct a disciplined, long-term approach to stock selection. The screening methodology targets growth-oriented companies that are not overvalued, with a particular emphasis on sectors aligned with the current cycle—Healthcare, Discretionary, Industrials, Tech, and Financials. The Long Term Growth screener blends filters that emphasize healthy debt levels, improving profitability, and efficiency with a structured ranking system that rewards compelling valuation, robust growth, and strong balance sheets.
This approach is designed to serve as a practical starting point for more in-depth research. As the macro environment and the economy evolve, it is prudent to revisit the underlying economic principles and adjust investment strategies accordingly. By combining quantitative screening with qualitative follow-up analysis, investors can identify solid long-term candidates whose fundamentals remain compelling even as rates drift higher or structural conditions shift.
In essence, the Part 2 analysis provides a rigorous, repeatable framework for uncovering long-term winners in today’s market, using sector discipline, disciplined capital-structure considerations, and a transparent ranking methodology to distinguish the strongest candidates for further study and potential investment.
Conclusion
Investing in Today’s Market – Part 2 completes a comprehensive look at identifying enduring growth opportunities through a disciplined, screen-driven process. By focusing on sectors with favorable cycle timing, applying robust filters for debt, efficiency, and balance-sheet strength, and employing a transparent ranking framework, investors gain a structured path to uncover resilient, long-term candidates. The approach encourages ongoing refinement as the economy evolves, reminding readers that a disciplined methodology—paired with careful, in-depth due diligence—can help navigate a dynamic market and position portfolios for sustainable, long-term growth.