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Costco & 2 Earnings Acceleration Stocks to Watch for Solid Upside
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Key Takeaways
COST, CMI and KMT passed earnings acceleration screens from a 7,735-stock universe.
Cummins expects 23.2% earnings growth this year across its global power solutions business.
Kennametal projects 123.1% earnings growth this year in advanced materials and tooling.
Investors often consider consistent earnings growth to be the hallmark of a financially sound company. However, an even more powerful indicator is earnings acceleration, which can be a key driver for stock price gains. Research shows that many of the market’s top-performing stocks demonstrate earnings acceleration before their share prices start to climb upward.
To that end, Costco Wholesale Corporation (COST - Free Report) , Cummins Inc. (CMI - Free Report) and Kennametal Inc. (KMT - Free Report) are showing strong earnings acceleration.
Why Earnings Acceleration Often Precedes Stock Price Gains
Earnings acceleration refers to the incremental growth in a company’s earnings per share (EPS). Put simply, if a company’s quarter-over-quarter earnings growth rate increases over a given period, it can be called earnings acceleration.
In the case of earnings growth, you pay for something that is already reflected in the stock price. However, earnings acceleration helps identify stocks that haven’t yet caught investors’ attention and, once secured, will invariably lead to a rally in share price. This is because earnings acceleration considers both the direction and magnitude of growth rates.
An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may drag prices down.
Find Winning Stocks Faster With Research Wizard
Look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed the previous periods’ growth rates. The projected EPS growth rate for the upcoming quarter is expected to exceed that of prior periods.
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 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 the universe of around 7,735 stocks to only 17. Here are the top three stocks:
Costco Wholesale
Costco Wholesale operates membership warehouse clubs across the United States and several international markets. Costco Wholesale has a Zacks Rank #3 (Hold). COST’s expected earnings growth rate for the current year is 13.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cummins
Cummins delivers a range of power solutions worldwide, operating across five key segments, including Engine and Power Systems. Cummins has a Zacks Rank #2 (Buy). CMI’s expected earnings growth rate for the current year is 23.2%.
Kennametal
Kennametal develops and supplies advanced materials and industrial solutions, including tungsten carbide and ceramics, worldwide. Kennametal has a Zacks Rank #3. KMT’s expected earnings growth rate for the current year is 123.1%.
View the Zacks #1 Rank List
Image: Bigstock
Costco & 2 Earnings Acceleration Stocks to Watch for Solid Upside
Key Takeaways
Investors often consider consistent earnings growth to be the hallmark of a financially sound company. However, an even more powerful indicator is earnings acceleration, which can be a key driver for stock price gains. Research shows that many of the market’s top-performing stocks demonstrate earnings acceleration before their share prices start to climb upward.
To that end, Costco Wholesale Corporation (COST - Free Report) , Cummins Inc. (CMI - Free Report) and Kennametal Inc. (KMT - Free Report) are showing strong earnings acceleration.
Why Earnings Acceleration Often Precedes Stock Price Gains
Earnings acceleration refers to the incremental growth in a company’s earnings per share (EPS). Put simply, if a company’s quarter-over-quarter earnings growth rate increases over a given period, it can be called earnings acceleration.
In the case of earnings growth, you pay for something that is already reflected in the stock price. However, earnings acceleration helps identify stocks that haven’t yet caught investors’ attention and, once secured, will invariably lead to a rally in share price. This is because earnings acceleration considers both the direction and magnitude of growth rates.
An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may drag prices down.
Find Winning Stocks Faster With Research Wizard
Look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed the previous periods’ growth rates. The projected EPS growth rate for the upcoming quarter is expected to exceed that of prior periods.
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 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 the universe of around 7,735 stocks to only 17. Here are the top three stocks:
Costco Wholesale
Costco Wholesale operates membership warehouse clubs across the United States and several international markets. Costco Wholesale has a Zacks Rank #3 (Hold). COST’s expected earnings growth rate for the current year is 13.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cummins
Cummins delivers a range of power solutions worldwide, operating across five key segments, including Engine and Power Systems. Cummins has a Zacks Rank #2 (Buy). CMI’s expected earnings growth rate for the current year is 23.2%.
Kennametal
Kennametal develops and supplies advanced materials and industrial solutions, including tungsten carbide and ceramics, worldwide. Kennametal has a Zacks Rank #3. KMT’s expected earnings growth rate for the current year is 123.1%.