High Growth Stocks At A Reasonable Price (ALXN, SNDA, SCCO, CPLA, CISG)

It has been very difficult to generate alpha in the stock market in 2010. Correlations between stocks and the indices are at all time highs, which suggests that stock picking simply has not been an effective strategy for many investors. Year-to-date, the S&P 500 has fallen 1.21% despite strong earnings growth, which indicates that multiples are contracting as investors become more risk averse. The stocks that have been working in this market are companies who are experiencing tremendous secular growth, such as Netflix NFLX, Salesforce.com CRM, and Akamai Technologies AKAM. All of these stocks have already experienced huge moves and are richly valued at this point. Running a screener looking for similarly high growth companies that are trading at more reasonable valuations, however, yielded some ideas. The metrics that were used are NASDAQ or NYSE stocks which have a market capitalization of over $1 billion, have grown revenues between 25-50% from last year, are expected to grow earnings per share between 25-50% next year, and are trading at a P/E multiple of below 20. The first company that met this criteria was Alexion Pharmaceuticals ALXN. This trades at a trailing P/E of 17.72, a forward P/E of 24.27, and a PEG ratio of 1.03. This valuation looks very attractive relative to growth expectations as indicated by the PEG ratio. Alexion (ALXN) has a market cap of $5.34 billion. The shares have climbed 21.47% year-to-date, and more than 315% in the last 5 years. Very bullish looking chart. Stock is at all time highs. The next stock to take a look at is Shanda Interactive Entertainment SNDA. Shanda Interactive Entertainment Limited is an interactive entertainment media company based in China. SNDA trades at a trailing P/E of 13.37, a forward multiple of 13.36 and a PEG ratio of 1.22. Year-to-date, the shares have fallen almost 22%, which could provide a good entry point for this fast grower. The company has a market cap of $2.60 billion. On a longer term basis, SNDA has created shareholder value, rising 27% in the last 5 years. Southern Copper SCCO was also one of the select few to meet the screening criteria. The shares trade at a trailing P/E of 19.81, a forward P/E of 11.99, and a dirt cheap PEG ratio of 0.51. The copper business is highly cyclical, however, so this should be taken into consideration when evaluating the company's valuation. Wall Street analysts are projecting that SCCO will earn $1.98 per share in 2010 and $2.67 in 2011. Capella Education CPLA is a high growth stock that could be considered a special situation. The shares have been crushed in recent months over concern about possible legislation which will effect the private education industry. Prior to the sell off, CPLA would have never met the "P/E under 20" criteria. Currently, however, CPLA is trading at a trailing P/E of 19.17, a forward P/E of 13.12, and a PEG ratio of 0.71, which looks attractive. This is a very high risk/reward situation because of the legislative overhang on the stock - but Wall Street analysts have a median price target of $102.50 on CPLA. Today, the shares are trading at $61.34. Another Chinese company that popped up on the screen was CNinsure CISG. This company is an independent insurance intermediary company operating in China. It has been a nice outperformer year-to-date, gaining almost 10% versus a loss for the S&P. The stock trades at a trailing P/E of 19.87, a forward P/E of 14.35, and an attractive PEG ratio of 0.69. The company only has a market cap of $1 billion, so it could be off of some larger institutional investors radar screen, and therefore undervalued. Wall Street analysts are projecting CISG will report EPS of $1.22 in 2010 and $1.54 in 2011. Revenues are expected to increase by more than $80 million between 2010 and 2011. These are just ideas. All of these stocks have a track record of growth which is projected to continue. They also trade at reasonable valuations compared to their growth projections. This is a good start, however, investors should also consider a company's competitive position, debt levels, business model, historic valuation, and other financial ratios such as price/book, debt/equity, and current ratio.