All else equal (of course it never is), stock prices
track earnings per share (EPS) more than any other single factor.
Thus it makes sense to own stocks likely to record
strong EPS growth while you hold them.
Today, I’ll describe a stock screen for finding such
fast growers.
It’s similar to a screen that I described
around a year-ago, however, the overall
economy is a lot hotter now, so I’ve been able to tweak the numbers
to find even better prospects.
As is usually the case, I’ll use the free and
user-friendly Finviz stock screener to demonstrate the process. It
offers a variety of screening parameters, which it calls “filters.”
Setup
Screener
From the Finviz homepage (finviz.com), select
“screener” and then “all” on the screen filters bar to see the
available filters. For each filter that you want to use, use the
adjacent dropdown menu to select a filter value.
Define
Target Universe
Since the U.S. stock market is still the strongest,
start by selecting “USA” on the Country filter. Next, use the Market
Cap (value of all outstanding shares) filter to specify “over $2
billion” to rule out higher risk smaller stocks.
Along those same lines, use the Price filter and
specify “Over $30” to rule out cheaper stocks, which contrary to
what you might think, are the riskiest plays.
Isolate
Fastest Growers
Most stocks grow earnings less than 5% annually. But,
here’s how we’ll pinpoint much faster growers. Select the “EPS
Growth This Year,” “EPS Growth Next Year,” and “EPS Growth Next Five
Years” filters and specify “Over 20%” for each. Less than 2% of all
stocks will meet those requirements.
Next, use the “Sales Growth Quarter Over Quarter”
filter and specify “Positive (>0%)” to assure that at least some of
our passing stocks’ EPS growth came from higher sales, not just cost
cutting.
Profitability Drives Earnings
The more profitable the stock, the more cash it
generates to fund growth and pay dividends. Return on Equity (ROE),
which is net income percentage of net assets, is a popular
profitability gauge. Use the ROE filter to specify “Over +20%”
Which limits your list to the most profitable stocks. In fact, only
11% of U.S.-listed stocks could pass that test.
Follow
Big Money
Institutional owners such as mutual funds and pension
funds have access to information that you and I never see. Specify
“Over 50%” for Institutional Ownership, and “positive” for
Institutional Transactions, to assure that these wired-in players
not only hold significant positions, but are still adding to their
holdings.
Analysts Say "Buy!"
Stocks analysts spend their days analyzing stocks.
Use the Analyst Recommendation filter to piggyback on their efforts
by specifying “Buy or Better.”
Make the
Trend Your Friend
Use the “price above simple moving average (SMA)”
filter for both the 50-Day and 200-Day SMA filters to limit your
list to already uptrending stocks, which are always your best bets.
Five
Best EPS Growers
My screen turned up five hot
earnings growth prospects.
Advanced Micro Devices (AMD), Amazon.com (AMZN),
Digital Turbine (APPS), Netflix (NFLX) and Sysco Corporation (SYY).
Consider the stocks found by any screen to be
research candidates, not a buy list. The more you know about your
stocks, the better your results.
published 10/25/21
