5 Stocks to Buy for Explosive Earnings Acceleration
Earnings growth enthralls almost everyone, right from the top brass to research analysts. 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!
Earnings acceleration, however, works even better when it comes to lifting the stock price. Studies have shown that a majority of successful stocks had seen acceleration in earnings before an uptick in the stock price.
Finding 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.
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. On the other hand, a 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.
The Winning Strategy
Let’s look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed 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.
Zacks Rank less than or equal to 2 (Only Zacks' 'Buys' and 'Strong Buys' are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.)
The above criteria narrowed down the universe of around 7,889 stocks to only five. Here are the stocks.
Verisign, Inc. VRSN is a provider of domain name registry services and Internet security. The company operates through Registry Services and Security Services segment. Verisign has a Zacks Rank #2 (Buy). The company’s projected earnings growth rate for this year is 8.9%.
RPC, Inc. RES is a holding company for several oilfield services companies. The company has a Zacks Rank #2. Its projected earnings growth rate for this year is a whopping 173.6%.
Star Bulk Carriers Corp. SBLK is an international shipping company. The company owns and operates a fleet of dry bulk carrier vessels. Star Bulk Carriers has a Zacks Rank #2. The company’s projected earnings growth rate for this year is a staggering 82%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DXC Technology Company DXC provides information technology services and solutions, primarily in North America, Europe, Asia, and Australia. The company sports a Zacks Rank #1. Its projected earnings growth rate for this year is 10.4%.
Oracle Corporation ORCL provides products and services that address all aspects of corporate information technology (IT) environments, including application, platform and infrastructure. The company has a Zacks Rank #2. Oracle’s projected earnings growth rate for the next quarter is 10.43%.
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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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Star Bulk Carriers Corp. (SBLK): Free Stock Analysis Report
VeriSign, Inc. (VRSN): Free Stock Analysis Report
Oracle Corporation (ORCL): Free Stock Analysis Report
RPC, Inc. (RES): Free Stock Analysis Report
DXC Technology Company. (DXC): Free Stock Analysis Report
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