Validea's Top Information Technology Stocks Based On Martin Zweig

Validea's Growth Investor model, applying Martin Zweig's strategy, rated Plexus Corp (PLXS) as the highest-scoring Information Technology stock at 77%, nearing the 80% threshold for 'some interest.' While PLXS, a mid-cap semiconductor company, largely satisfied criteria for accelerating earnings and sales growth, reasonable valuation, and low debt, it notably fell short on earnings persistence and long-term EPS growth. Conversely, Celestica, Logitech, VeriSign, and CTS Corp received lower 69% ratings, indicating less alignment with the Zweig growth philosophy due to specific weaknesses in areas such as P/E ratio, revenue-to-EPS growth, or debt-to-equity levels.

Analysis

An evaluation of five information technology stocks using Validea's Martin Zweig growth model reveals that none fully meet the strategy's stringent criteria, with Plexus Corp (PLXS) emerging as the most favorable but still falling short of a formal 'interest' rating. PLXS achieved a score of 77%, below the 80% threshold, by passing tests for reasonable P/E ratio, low debt-to-equity, and multiple measures of accelerating current-quarter earnings. However, its profile is marred by failures in 'Earnings Persistence' and 'Long-Term EPS Growth', indicating that while current momentum is strong, its sustainability is questionable under this model. The other four companies—Celestica (CLS), Logitech (LOGI), VeriSign (VRSN), and CTS Corp (CTS)—all scored a lower 69%. Their underperformance stems from a variety of weaknesses: Celestica fails on both P/E ratio and debt-to-equity, Verisign also fails the debt test, and Logitech, Verisign, and CTS all fail on 'Earnings Persistence'. A common deficiency across most of the laggards is a failure to demonstrate consistent earnings growth over the past several quarters, despite showing positive current-quarter results, highlighting a lack of the persistent acceleration Zweig's strategy demands.

Key Decisions for Investors

• Given Plexus Corp's (PLXS) position as the highest-rated stock at 77%, investors could consider it for further due diligence, but should focus specifically on validating the sustainability of its growth trajectory due to the model's flags on 'Earnings Persistence' and 'Long-Term EPS Growth'.
• The 69% scores for Celestica (CLS), Logitech (LOGI), VeriSign (VRSN), and CTS (CTS) suggest caution for growth-focused investors, as they exhibit fundamental inconsistencies such as high debt, unfavorable valuations, or erratic multi-quarter earnings that conflict with the core tenets of the Zweig model.
• The consistent 'PASS' rating on 'Insider Transactions' across all five companies is a minor positive signal, suggesting a lack of significant insider selling, which can be viewed as a modest vote of confidence from management.
• Investors should note the widespread failure of these firms to meet criteria for sustained, long-term growth, implying that their strong current-quarter performance may not be indicative of future results and requires deeper investigation into forward guidance and industry outlook.