PAREXEL: A Cornerstone Buy
02/27/2014 8:00 am EST
To select stocks for our model portfolios, we assess the strategies of legendary investors, ranging from Warren Buffett to Marty Zweig. Here, we select a new "Hot List" buy based on the Growth/Value Investor strategy of James P. O'Shaughnessy, explains John Reese in Validea.
PAREXEL International (PRXL) a Massachusetts-based biotech firm, operates in 76 locations, providing expertise in clinical research, communications, and consulting.
Serving the pharmaceutical, biotechnology, and medical device industries, the company's offerings range from clinical trials management, to data management, to biostatistical analysis, to epidemiology, and beyond.
PAREXEL gets strong interest from my James O'Shaughnessy-inspired growth model, earning a Guru Score of 100%.
The first requirement of O'Shaughnessy Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million.
This will screen out the companies that are too illiquid for most investors, but still include a small growth company. PRXL, with a market cap of $2,944 million, passes this criterion.
The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period.
PRXL, whose annual EPS before extraordinary items for the last five years (from earliest to the most recent fiscal year) were 0.68, 0.71, 0.82, 1.04, and 1.61, passes this test.
The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. PRXL's Price/Sales ratio of 1.37, based on trailing 12 month sales, passes this criterion.
The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion.
This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. PRXL, whose relative strength is 79, is in the top 50 and would pass this last criterion.
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