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5 Top-Notch Stocks Driven by Earnings Acceleration

Right from the top brass to research analysts, everyone is excited about earnings. 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!

It also has a direct impact on the stock price. Better-than-expected earnings are more often than not followed by an uptick in shares, but earnings acceleration works even better in lifting the stock price.

Spotting Future Outperformers

In case of earnings growth you pay for something that is already reflected in the stock price. However, earnings acceleration helps one to spot stocks that haven't caught the attention of investors yet, and 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. This is the reason why earnings acceleration should be viewed as a key metric for share price outperformance.

Earnings acceleration is nothing but incrementally growing earnings per share (EPS) of a company. In other words, if the rate of a company's quarter-over-quarter earnings growth increases over a considerable period, it is termed as earnings acceleration.

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.

The Winning 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 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 7,711 stocks to only 21. Here are the top five stocks:

Hill-Rom Holdings, Inc.HRC is a medical technology company. Hill-Rom Holdings offers patient care solutions that improve clinical and economic outcomes in advancing mobility, wound care and prevention, clinical workflow, surgical safety and efficiency, and respiratory health areas. The company's expected earnings growth for the current year is 29.7%.

Kronos Worldwide, Inc . KRO is a producer and marketer of titanium dioxide (TiO2) pigments, a base industrial product that is used in a range of applications. The company's expected earnings growth for the current year is 153.8%.

NVIDIA CorporationNVDA is engaged in visual computing. NVIDIA operates through segments, including GPU and Tegra Processor. The company's expected earnings growth for the current year is 71.1%.

Cliffs Natural Resources IncCLF is a mining and natural resources company. Cliffs Natural Resources supplies iron ore pellets to the North American steel industry from its mines and pellet plants located in Michigan and Minnesota. The company's expected earnings growth for the current year is 231.5%.

Icahn Enterprises LPIEP is a diversified holding company, whose operating segments include Automotive, Energy, Metals, Railcar, Gaming, Food Packaging, Mining, Real Estate and Home Fashion. The company's expected earnings growth for the current year is 178%.

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.

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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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KRONOS WORLDWD (KRO): Free Stock Analysis Report

ICAHN ENTERPRIS (IEP): Free Stock Analysis Report

HILL-ROM HLDGS (HRC): Free Stock Analysis Report

CLIFFS NATURAL (CLF): Free Stock Analysis Report

NVIDIA CORP (NVDA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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