5 Stocks With Solid Earnings Growth To Buy Now

Earnings for a company are arrived at after subtracting the cost of production from revenues over a given period of time. This metric is arguably the most important one for an organization’s top brass. And why is this so? It’s because earnings, commonly referred to as the bottom line, is the ultimate indicator of profitability. It also determines how affluent the company’s shareholders are.

Earnings Estimates and Its Influence on Stock Prices

Not very often we have seen a company’s stock price declining after reporting earnings growth or for that matter a stock price surging following an earnings decline. But in some cases, the stocks move in the opposite direction of earnings if market expectations are not met.

So earnings estimates also come into play in moving the stock price. In fact, earnings estimate revision is a very important factor in driving stock prices. A change in earnings estimates indicates the health of various factors such as sales, demand, profit margins, expenses, etc.

During any earnings season, it is prudent to invest in stocks that not only have high historical earnings growth rate but are also seeing an increase in quarterly and annual earnings estimates.

Screening Parameters

In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we added the following parameters:

Zacks Rank equal to 1: Only Zacks' 'Strong Buys' 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 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 year.

% 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 over 7,747 stocks to only 18. Here are the top 5 stocks:

Facebook, Inc. ( (NASDAQ:FB) )

Ingredion Incorporated ( (NYSE:INGR) )

Newell Brands Inc. ( (NYSE:NWL) )

Ellie Mae, Inc. ( (NYSE:ELLI) )

SkyWest Inc. ( (NASDAQ:SKYW) )

While backtesting over an almost two-year timeframe (May 02, 2014 to Apr 08, 2016), considering a four-week holding period, a portfolio following this strategy provided a total return of 19.2% compared with the S&P 500’s return of 7.6%. For investors with a reasonably high risk appetite, this strategy provides rich rewards.

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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: http://www.zacks.com/performance

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