Best stocks to invest in
Consistent earnings growth is perhaps the most important thing for a company to aim for. Almost everyone, right from the top brass to research analysts, is captivated by this metric. But why is this so? This is because earnings serve as the indicator of a company’s profitability. It also has a direct impact on the share price. Better-than-expected earnings results are more often than not followed by an uptick in the share price.
But earnings acceleration works even better when it comes to lifting the stock price. A good many successful stocks had seen acceleration in earnings before positive price moves. So, what exactly is earnings acceleration?
Earnings Acceleration for Spotting Future Outperformers
If the rate of a company’s quarter-over-quarter earnings growth increases over a considerable period, it can be called earnings acceleration. In other words, it is the incremental growth in earnings per share (EPS) of a company.
Earnings acceleration helps one to spot stocks that haven’t caught the attention of the investors yet, which once secured will invariably lead to an uptick in the share price. This is because earnings acceleration considers both direction and magnitude of growth rates. However, if you pick stocks just on the basis of earnings growth then you are paying for something that has already been reflected in the stock price.
Increase in the percentage of earnings growth can often be the difference between good stocks and great stocks. It convinces us about the fundamental soundness of the company and that the beats were no flash in the pan. Sideways percentage of earnings growth, on the other hand, indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times drag prices down.
As we are into the earnings season, investment in stocks having solid earnings acceleration will be a profitable strategy.
Let’s look for 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 rate is 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:
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 about 7,737 stocks to only 13. Here are the top five stocks:
Momenta Pharmaceuticals, Inc. MNTA focuses on developing generic versions of complex drugs, biosimilar, and novel therapeutics for oncology and autoimmune diseases. The company’s estimated earnings growth rate for this year is 13%.
Acuity Brands, Inc. AYI designs, produces, and distributes various lighting solutions and services for commercial, institutional, industrial, infrastructure, and residential applications in North America and internationally. The company’s estimated earnings growth rate for this year is 41.1%.
KEYW Holding Corp. KEYW provides mission-critical cybersecurity, cyber superiority and geospatial intelligence solutions in the United States. The company’s estimated earnings growth rate for this year is more than 100%.
Inteliquent Inc IQNT provides voice telecommunications services on a wholesale basis in the United States and internationally. The company’s estimated earnings growth rate for this year is 12.1%.
LATAM Airlines Group SA LFL provides passenger and cargo air transportation services in America, Europe, and Oceania. The company’s estimated earnings growth rate for this year is more than 173.4%.
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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.
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LATAM AIRLINES (LFL): Free Stock Analysis Report
ACUITY BRANDS (AYI): Free Stock Analysis Report
KEYW HOLDING CP (KEYW): Free Stock Analysis Report
MOMENTA PHARMA (MNTA): Free Stock Analysis Report
INTELIQUENT INC (IQNT): Free Stock Analysis Report
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