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4 Top Stocks with Earnings Acceleration to Buy in 2017

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Consistent earnings growth enthralls almost everyone, right from the top brass to research analysts. This is because earnings are a measure of the money a company is making. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!

Better-than-expected earnings results mostly lead to an uptick in the share price. Studies, however, have shown that a majority of successful stocks had seen acceleration in earnings before a positive stock price movement. Hence, earnings acceleration works even better in lifting the stock price.

Spot the Outperformers

In case of earnings growth, you pay for something that is already reflected in the stock price. But, earnings acceleration helps spot stocks that haven’t caught the attention of investors yet, which once secured will invariably lead to a rally in the share price. This is because earnings acceleration considers both direction and magnitude of growth rates.

Earnings acceleration is basically the increase in a company’s quarter-over-quarter earnings growth within a stipulated frame of time. In other words, it is the incremental growth in earnings of a company.

Increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period of time. Sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times drag prices down.

This is the reason why earnings acceleration should be viewed as a key metric for share price outperformance.

Screening Parameters:

Let’s pick stocks for which the last two quarter-over-quarter percentage EPS growth rates have been more than the growth rates of the previous periods. The projected quarter-over-quarter percentage EPS growth rates are also expected to be higher than the previous periods’ growth rates.

EPS % Projected Growth (Q1)/(Q0) greater than EPS % Growth (Q0)/(Q-1): The projected growth rate for the current quarter (Q1) over the completed quarter (Q0) has to be greater than the growth rate from the completed quarter (Q0) over one quarter ago (Q-1).

EPS % Growth (Q0)/(Q-1) greater than EPS % Growth (Q-1)/(Q-2): The growth rate for the completed quarter (Q0) over one quarter ago (Q-1) has to be greater than the growth rate from one quarter ago (Q-1) over two quarters ago (Q-2).

EPS % Growth (Q-1)/(Q-2) greater than EPS % Growth (Q-2)/(Q-3): The growth rate from one quarter ago (Q-1) over two quarters ago (Q-2) has to be greater than the growth rate from two quarters ago (Q-2) over three quarters ago (Q-3).

In addition to this, we have added the following parameters:

Current Price greater than or equal to $5: This screens out the low-priced stocks.

Average 20-day volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.

The above criteria narrowed down the universe of around 7,676 stocks to only 31. Here are the top four stocks:

Lancaster Colony Corporation (LANC - Free Report) manufactures and markets specialty food products for the retail and foodservice markets in the U.S. The company’s projected earnings growth rate for the current and next year are 8.4% and 4.6%, respectively. The Zacks Consensus Estimate for its current year earnings rose 4.6% over the last 60 days. Lancaster Colony has a Zacks Rank #2 (Buy).

Pinnacle Foods Inc. manufactures, markets and distributes branded convenience food products in North America. The company’s projected earnings growth rate for the current and next year are 11.6% and 15.7%, respectively. The Zacks Consensus Estimate for its current year earnings increased 0.3% over the last 90 days. Pinnacle Foods has a Zacks Rank #2.

Sucampo Pharmaceuticals, Inc. , a biopharmaceutical company, focuses on the research and development of proprietary drugs in the U.S., Japan, Switzerland, and internationally. The company’s projected earnings growth rate for the current and next year are a respective 23.2% and 42.2%. The Zacks Consensus Estimate for its current year earnings rose 18.4% over the last 60 days. Sucampo Pharmaceuticals sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

VMware, Inc. provides virtualization and cloud infrastructure solutions in the United States and internationally. The company’s projected earnings growth rate for the current and next year are 2.7% and 12.4%, respectively. The Zacks Consensus Estimate for its current year earnings rose 1.3% over the last 60 days. VMware has a Zacks Rank #2.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance

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