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Earnings Growth Makes These 5 Stocks Must Buys

Zacks

Whether it is a fledgling or a renowned company, the highest priority among the top brass in any organization is to secure earnings growth on a year-over-year basis. 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!

This metric is also considered the most significant variable in influencing the share price. Better-than-expected earnings performances normally lead to a rally in the share price. However, in addition to actual earnings, expectations of earnings play a vital role in determining share price movement.

Earnings Estimates Determine Share Prices

We have often seen a decline in the stock price despite earnings growth and a rally in the price following an earnings decline. This happens because of the missing or beating of estimates.


Earnings estimates embody analysts’ opinions of 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 the cash flow to determine the fair value of a firm.

Investors, thus, should be on the lookout for stocks that are ready to make a big move. Hence, it is important for investors to buy stocks that have historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.

The Winning Strategy

In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we 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.) You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

5-Year Historical EPS Growth (%) greater than X-Industry (Stocks that possess strong EPS growth history.)

% Change EPS F(0)/F(-1) greater than or equal to 5 (Companies that witnessed year-over-year earnings growth rate 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 down the universe of around 7,881 stocks to only five. Here are the stocks:

SYNNEX Corporation SNX is a business process services company. The company provides a range of distribution, logistics and integration services for the technology industry along with outsourced services focused on customer engagement strategy. SYNNEX has a Zacks Rank #2 (Buy). The company’s estimated growth rate for this year is 14.3%, higher than the Business – Software Services industry’s expected gain of 12.6%.

Applied Materials, Inc. AMAT provides manufacturing equipment, services and software to the global semiconductor, display and related industries. The company sports a Zacks Rank #1 (Strong Buy). The company’s estimated growth rate for this year is 73%, more than the Semiconductor Equipment – Wafer Fabrication industry’s expected gain of 39.9%.

Hawaiian Holdings, Inc. HA is mostly engaged in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands. The company has a Zacks Rank #2. The company’s estimated growth rate for this year is 3.4%, in contrast to the Transportation – Airline industry’s projected fall of 7.4%.

Southwest Airlines Co LUV a passenger airline that provides scheduled air transportation in the U.S. The company provides point-to-point service. Southwest Airlines has a Zacks Rank #2. The company’s estimated growth rate for this year is 2.4%, in contrast to the Transportation – Airline industry’s projected fall 7.4%.

3M Co MMM operates as a diversified technology company worldwide. The company has a Zacks Rank #2. 3M, which is part of the Diversified Operations industry, is estimated to gain a solid 9.5% this year.

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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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