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As the U.S. companies start reporting their numbers for the final three months of 2016, investors should scoop up stocks that are ready to make a big move. Better-than-expected earnings results are more often than not followed by an uptick in the share price. Almost everyone, right from the top brass to research analysts, is enthralled by consistent earnings growth. But the question here is why? This is simply 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!
But, earnings acceleration works even better in boosting the stock price. Studies have shown that a majority of successful stocks had seen acceleration in earnings before a positive stock price movement.
Spotting Future Outperformers
Basically, earnings acceleration is the incremental growth in earnings of a company. In other words, if the rate of a company’s quarter-over-quarter earnings growth increases within a stipulated frame of time, it can be referred to as earnings acceleration.
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.
Increase in the percentage of earnings growth convinces us about the fundamental soundness of the company. A sideways percentage of earnings growth, on the other hand, indicates a period of consolidation or slowdown. If the earnings growth percentage moderates, share prices are more likely to nosedive.
Hence, 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 are 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.
Teladoc, Inc. (TDOC - Free Report) provides telehealth services to its members and customers in the United States. The company’s estimated earnings growth rate for this year is 46%.
United States Steel Corporation (X - Free Report) produces and sells flat-rolled and tubular steel products in North America and Europe. The company’s estimated earnings growth rate for this year is 147%.
Foresight Energy LP (FELP - Free Report) engages in the development, mining, transportation, and sale of thermal coal primarily in the eastern United States and internationally. The company’s estimated earnings growth rate for this year is 99.3%.
Apache Corporation (APA - Free Report) is an independent energy company that explores, develops, and produces natural gas, crude oil, and natural gas liquids. The company’s estimated earnings growth rate for this year is 331.4%.
ServisFirst Bancshares, Inc. (SFBS - Free Report) operates as the bank holding company for ServisFirst Bank that provides banking services to individual and corporate customers. The company’s estimated earnings growth rate for this year is 14.5%.
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.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Top Stocks Flaunting Earnings Acceleration
As the U.S. companies start reporting their numbers for the final three months of 2016, investors should scoop up stocks that are ready to make a big move. Better-than-expected earnings results are more often than not followed by an uptick in the share price. Almost everyone, right from the top brass to research analysts, is enthralled by consistent earnings growth. But the question here is why? This is simply 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!
But, earnings acceleration works even better in boosting the stock price. Studies have shown that a majority of successful stocks had seen acceleration in earnings before a positive stock price movement.
Spotting Future Outperformers
Basically, earnings acceleration is the incremental growth in earnings of a company. In other words, if the rate of a company’s quarter-over-quarter earnings growth increases within a stipulated frame of time, it can be referred to as earnings acceleration.
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.
Increase in the percentage of earnings growth convinces us about the fundamental soundness of the company. A sideways percentage of earnings growth, on the other hand, indicates a period of consolidation or slowdown. If the earnings growth percentage moderates, share prices are more likely to nosedive.
Hence, 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 are 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 7,816 stocks to only 21. Here are the top five stocks that flaunt a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Teladoc, Inc. (TDOC - Free Report) provides telehealth services to its members and customers in the United States. The company’s estimated earnings growth rate for this year is 46%.
United States Steel Corporation (X - Free Report) produces and sells flat-rolled and tubular steel products in North America and Europe. The company’s estimated earnings growth rate for this year is 147%.
Foresight Energy LP (FELP - Free Report) engages in the development, mining, transportation, and sale of thermal coal primarily in the eastern United States and internationally. The company’s estimated earnings growth rate for this year is 99.3%.
Apache Corporation (APA - Free Report) is an independent energy company that explores, develops, and produces natural gas, crude oil, and natural gas liquids. The company’s estimated earnings growth rate for this year is 331.4%.
ServisFirst Bancshares, Inc. (SFBS - Free Report) operates as the bank holding company for ServisFirst Bank that provides banking services to individual and corporate customers. The company’s estimated earnings growth rate for this year is 14.5%.
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.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »