What is Growth and Income?

Everyday readers of Zacks.com are offered four new stocks that fit each of the four main styles of investing: Aggressive Growth, Growth & Income, Momentum, and Value. For those who have checked out the companies under the different categories but may not have had the time to learn more about the style of investing related to the stock being researched, I thought it would be helpful to offer more insight on and links to explanations of the four investment styles.

Because I write about Growth and Income stocks, I will focus on this style for this week’s Investment Idea. However, links are provided to guides for all four investment styles at the end of the article. In an effort to leave no stone unturned, we made sure that each of the links below provide a comprehensive PDF guide and a list of individual well-detailed articles on the four different styles of investing.

What to Expect with Growth and Income

Generally, a Growth and Income play will have healthy balance sheets, consistent dividend payments, quality products and services and experienced management teams. Usually Growth and Income companies are industry leaders, displaying steady earnings growth.

Companies that continually exhibit stable earnings growth, more than anything else, are ones that should hit the radar screens of Growth & Income investors. After all, companies exhibiting all of the characteristics mentioned earlier should have no problem producing a steady stream of profit growth. Analysts will subsequently grow more optimistic about the future earnings potential of the company and adjust their estimates up accordingly.

Growth & income investors get a dual benefit from following earnings estimate revisions. First, positive estimate revisions help investors buy shares in the companies with the best chances to outperform the market. Second, positive estimate revisions provide the easiest means to monitor the health of companies, providing a rather clear signal when the time has come to abandon ship. Companies experiencing upward estimate revisions will generally enjoy positive momentum going forward. Rarely will a stock suffer a significant price decline in the face of improving fundamentals. Add it all up and it’s clear that Growth and Income investors should only buy shares in companies enjoying upward earnings estimate revisions. The best way to harness this phenomenon is through the Zacks Rank.

Solid Growth and Income picks should carry a Zacks Rank of #1 (Strong Buy) or #2 (Buy). Check out the Guide to Growth and Income investing for more detailed information on this style of investing and the important role that the Zacks Rank plays in screening for Growth and Income stocks.

A Growth and Income Stalwart

I have covered a wide variety of companies that fall under the Growth and Income style. Below is an example of a consistent Growth and Income play that is also currently a Zacks Rank #1 ("strong buy") name.

L-3 Communications ( LLL - Analyst Report ) , a Zacks #1 Rank company, has been consistently outperforming the Dow Jones ($DJI), S&P 500 (SPX) and Nasdaq (COMP) amid recent turmoil and over the long-term.

Higher Estimates

Wall Street is bullish on the aerospace and defense communications company. Analysts increased full-year 2008 earnings forecasts on L-3 communications from $6.68 to $7.17 per share over the past 90 trading days. The most accurate 2008 projection is a more bullish $7.36 per share. For 2009, the consensus estimate moved up from $7.42 to $7.60 over the past 90 trading days.

Rewarding Shareholders with Income

The company recently declared a quarterly dividend of 30 cents per share, noting that it is payable on December 15 to shareholders of record at the close of business on November 17.

LLL is scheduled to release results for the third quarter on October 23.

A Couple More Solid Growth and Income Plays

Casey & General Stores ( CASY - Snapshot Report ) has been trading ahead of the Dow Jones ($DJI), S&P 500 (SPX) and Nasdaq (COMP amid recent turmoil.

While grocers and food retailers have been slowing down, convenience stores like CASY have been outperforming. CASY has been consistently outperforming the Dow Jones ($DJI), S&P 500 (SPX) and the Nasdaq (COMP). The company offers a dividend yield of 1.2%, while the majority of its industry peers pay no dividend at all.

Strong Growth

The company reported an all-time high in earnings for the first fiscal quarter, surpassing the consensus estimate by nearly 18% and noting that the record quarter gave CASY a solid foundation for meeting its annual performance goals. During the past 5 consecutive quarters, the company missed analyst forecasts only once and on average topped estimates by 11%.

First-quarter sales were up 16.8% to $1.3 billion. Same-store gallons sold increased by 0.50%. Grocery and other merchandise same-store sales climbed 4.7%, and prepared food and fountain drinks same-store sales jumped 12.3 percent.

McDonald's Corporation ( MCD - Analyst Report ) recently boosted its dividend by 33% to 50 cents per share. MCD noted that the dividend is payable December 15 to shareholders of record on December 1. The company is yielding 2.5% in an industry that virtually pays no income.

Strong Fundamentals

McDonald's offers a return on equity (ROE) of 26%, above the industry average of 17%. The company's net margin of 19.2% soars past the industry average of 2.5%.

Rising Estimates

Analysts have been raising estimates. Wall Street has full-year 2008 earnings pegged at $3.54 per share, up a penny over the past week and higher than the $3.42 of three months ago.

McDonald's is scheduled to announce third-quarter results on October 22.

Additional Resources

Zacks Guide to Aggressive Growth

Zacks Guide to Growth and Income

Zacks Guide to Momentum

Zacks Guide to Value