3 Best Stocks to Buy for Solid Earnings Acceleration
Tirthankar Chakraborty
4 min read
If the rate of a company’s quarter-over-quarter earnings growth increases within a stipulated frame of time, it can be called earnings acceleration. In other words, earnings acceleration is the incremental growth in a company’s earnings per share (EPS).
We all know that constant earnings growth captivates almost everyone, from top brass to research analysts. This is because earnings are a measure of the money a company is making. Still, earnings acceleration works even better when it comes to lifting the stock price. Studies have shown that most successful stocks had seen an acceleration in earnings before an uptick in the stock price.
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.
An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, 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.
Screening Parameters
Let’s look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed the previous periods' growth rates. 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 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 7,735 stocks to only three. Here are the stocks:
Veoneer currently has a Zacks Rank #2 (Buy). Its expected earnings growth rate for the current year is 30.7%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
PattersonUTI Energy PTEN is an oilfield services company. In its current form, Patterson-UTI came into existence following a merger between Patterson Energy, Inc. and UTI Energy Corporation.
PattersonUTI Energy currently has a Zacks Rank #2. Its expected earnings growth rate for the current year is nearly 12%.
Select Energy Services WTTR is a provider of water solutions to the U.S. unconventional oil and gas industry. Select Energy Services offers drilling and completion activities associated with hydraulic fracturing.
Select Energy Services currently has a Zacks Rank #2. Its expected earnings growth rate for the current year is 83.4%.
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