Now that 13F season is behind us and earnings are winding down, I sat down and ran some of what I call my "unusual screens" -- which I only run once in a while. I have a whole set of screens that I run every week, but also have others that work pretty well but don't fit into my day-to-day approach to the markets.
One of my favorites is an undiscovered-growth screen that I run every few months and discuss with my kids as a source of opportunities for their investment accounts.
The screen is pretty basic. First, it looks for stocks that have grown earnings by 15% or more annually for both the past five years and the most-recent trailing 12 months. Stocks also need a sub-$1 billion market cap and institutions can't own more than 60% of the shares outstanding. And being cheap at heart, I won't pay more than 20x earnings no matter how high the growth rates are.
It's a very simple screen, but it's outperformed the overall market by almost a 3-to-1 margin over the past 15 years.
When I ran the screen last night, I found some very interesting companies:
Allied Motion Technologies (AMOT)
This firm makes motion products like motors and controllers used in a wide range of industries, including medical, defense aerospace and telecommunications.
Allied has been seeing solid expansion, with a five-year average annual earnings-growth rate of 23% and a year-over-year leap of over 200%. The stock is also fairly cheap, trading at just 10x earnings.
I spent some time looking over Allied's Web site and the company has some intriguing operations, especially the products it makes for health-care and defense customers. Insiders have some skin in the game, with a little over 13% ownership. But institutions have ignored the company so far, owning just 34% of the shares outstanding.
Nevsun Resources (NSU)
Nevsun is in the wildly unpopular mining industry -- and to make matters worse, it mines copper, whose prices have fallen by more than 25% over the past year.
As a result, Nevsun has seen its stock fall sharply along with metals prices despite the company's strong one- and five-year earnings growth. That means NSU is now dirt cheap, with a P/E of 8, a price-to-book value of 0.82 and an EV/Ebit multiple of under 2.
The company is also generating free cash flow and has a dividend yield of over 5% at current prices. Nevsun has also been expanding its zinc-mining operations.
If the firm can just survive until metals prices improve, the stock should be a multi-bagger. Insiders certainly have a vested interest in navigating the current turbulent waters, as they own 18% of the company.
Twin Disc (TWIN)
This firm may be the perfect example of an undiscovered growth stock.
Face it, you don't usually think of marine and heavy-duty off-highway power-transmission equipment as a growth market -- but that's exactly what Twin Disc successfully sells.
The company makes things like marine transmissions, surface drives, propellers and boat-management systems for the military and civilian boating industries. Twin Disc also sells things like hydraulic torque converters and industrial clutches to the government, industrial and natural-resources markets.
To say that business is good is an understatement. Twin Disc's earnings have grown by 81% annually on average over the past five years and profits are up 200% in the past 12 months.
But despite this sparkling performance (and about a 2.5% dividend yield), the stock trades at less than 15x earnings and 1.2x book value. The EV/EBIT ratio is likewise at just 8, which puts TWIN in the bottom 20% of all stocks (and just a little over half the S&P 500's multiple).
Institutions currently own just 55% of the stock, but could apply the type of buying pressure that pushes TWIN a lot higher once they notice the company's excellent performance.
The bottom line
Finding fast-growing companies before the institutions pile into them can lead to huge profits when firms finally show up on big-money buyers' radar screens. So, these three firms are all worth investigation by long-term, growth-oriented investors.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider AMOT and TWIN to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.