To determine earnings, subtract production costs from revenues. Consistent earnings growth is essential for all companies since survival depends on profitability. Earnings are also regarded as the most important factor influencing share prices.
However, expectations of earnings play a significant role. Nonetheless, stocks such as JPMorgan Chase & Co. JPM, Commvault Systems, Inc. CVLT and Westinghouse Air Brake Technologies Corporation WAB are currently showing excellent earnings growth.
We have frequently seen a decline in stock prices despite earnings growth, followed by a rally in prices after an earnings decline. This is largely the result of a company’s earnings failing to meet market expectations.
Earnings estimates embody analysts’ opinions on factors such as sales growth, product demand, competitive industry environment, profit margins, and cost control. Thus, earnings estimates serve as a valuable tool while making investment decisions. Earnings estimates also help analysts assess a firm’s cash flow to determine its fair value.
Thus, investors should be on the lookout for stocks ready to make a big move. Hence, investors need to buy stocks with historical earnings growth and are seeing a rise in quarterly and annual earnings estimates.
To shortlist stocks that have striking earnings growth and positive estimate revisions, we have added the following parameters:
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.)
5-Year Historical EPS Growth (%) greater than X-Industry (stocks with a strong EPS growth history).
% Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw year-over-year earnings growth of 5% or more in the last reported fiscal).
% Change Q1 Estimates over the last 4 weeks greater than zero (stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks).
% Change F1 Estimates over the last 1 week greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 1 week).
% Change F1 Estimates over the last 4 weeks greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 4 weeks).
The above criteria narrowed the universe of around 7,839 stocks to only 16. Here are the top three stocks:
JPMorgan is a global financial services company involved in consumer banking, investment banking and asset management. The company’s expected earnings growth rate for the next five years is 7.9%. JPM currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
