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Tickers in this Article: BKI, CBT, DGIT
These companies fill important niches in their fields, and two are trading at a significant discount to their industry peers, notes Richard Moroney of Upside.

Amid signs of a slowdown in the economy, investors have rotated into shares of companies with strong operating momentum and superior track records.

As a result, stocks with high scores for Earnings Estimates, Momentum, and Quality have outperformed since October. That represents a sharp reversal from 2009 and early 2010, when stocks with the worst fundamentals rebounded most—and Value was the only consistently effective category.

Assuming weekly rebalancing, the top one-tenth of S&P 1500 Index stocks based on Earnings Estimates, Momentum, Quality, and Value have outperformed so far in 2011. As tends to happen when both Value and the more growth-oriented categories are working, top Overall scorers are performing even better, with the top one-tenth outperforming the average stock by more than 5% in 2011.

With that in mind, we’re looking for stocks with standout scores for Earnings Estimates, Momentum, Value, and Quality.

Buckeye Technologies (BKI)
This firm produced 5% of the global output for fluff pulp in 2010, a steady though unglamorous business that supplies makers of such products as the absorbency material in diapers.

Yet Buckeye shares have been a Wall Street favorite, soaring 124% over the past year. At 14 times trailing earnings, shares remain reasonably valued, and trade in line with their industry-group average.

Free cash flow has risen in seven of the last eight quarters. Buckeye’s improving operating profit margins (up six straight quarters) reflects stronger pricing and an improved product mix.

Fluff pulp accounts for about 20% of Buckeye’s sales, with the balance coming from chemical cellulose (33%), nonwoven materials (33%), and customized fibers (15%)—essential ingredients for food casings, tablecloths, and industrial filters.

Just two of Buckeye’s seven facilities are operating at capacity, giving the company flexibility to ramp production as demand improves.

Cabot (CBT)
A specialty chemicals company, Cabot has delivered double-digit sales growth in each of the last five quarters.

Operating cash flow jumped 138%, to $295 million, for the 12 months ended in March. Its valuation remains attractive at less than 14 times trailing earnings, 15% below the average diversified-chemicals stock in the S&P 1500 Index.

Cabot is lifting capital spending to $250 million this year—more than double the expenditures of 2009 and 2010 combined. The company also plans to invest $180 million to boost emerging-market production capacity for carbon black—used in the making of rubber, plastics, and inks.

Cabot is projected to earn 87 cents per share in the June quarter, down 8% from the year-earlier period. But analyst estimates have risen in the past month, and per-share profits are expected to climb 21% in the September quarter.

DG FastChannel (DGIT)
This performer has reeled off 19 straight quarters of double-digit sales growth.

In May, DG hiked its 2011 revenue guidance to between $294 million and $300 million, implying growth of 19% to 21%. DG, a provider of digital-media services, owes much of its growth to the surge in online advertising.

At 19 times trailing earnings, the stock trades 27% below its three-year average. Shares also look attractive at 16 times expected 2011 earnings, an 18% discount to the communications-equipment group.

The consensus calls for per-share earnings of $2.19 this year, up 31%. For 2012, the consensus has climbed to $2.62, up from the $2.43 expected a month ago.

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