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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank
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To: LastShadow who wrote (10742)6/28/1998 12:22:00 PM
From: Jenna   of 120523
 
More on "Earnings Plays" strategies.
If you look through the Market Gems flyer marketgems.com, you will note that at the bottom I make reference to using earnings plays for stocks that you might want to go long in for a intermediate or long term. They fit the bill since after these companies have a really good earnings report they are picked up by institutions and mutual funds.

In a timely and informative article in Investor's Business Daily Friday June 26, 1998. on Earnings Reports for Investment Ideas. they outlined the VERY SAME IDEA (albeit a bit later than we did).

In their table called "BEST UPS" they have listed stocks with the largest year-over year gains in quarterly profits. The stocks you choose from this list should have an EPS and RS of at least 80. They go on to explain how they get their EPS and RS numbers. They explain that when there is * next to the company it signals a 30% of better increase in year-over year quarterly profit growth and an acceleration in both profits and sales growth from the prior quarter. This is an excellent measure for purchasing the stock.

What we do in Market Gems is get these figures BEFORE the company reports. When we scan for companies with optimum increase in acceleration (from prior quarter) and velocity(from same quarter last year) and increase in revenues, %profit margin we are able to pre-determine what these projected figures will be from our fundamental scans. We are also able to predetermine in the universe of stocks in what percentage they fall in (screening for stocks in the top 98th percentile for earnings acceleration, velocity, %profit margin growth, %revenue growth quarter after quarter for the last 8 quarters).

The paper prefers strong percentage rise from a strong year ago than a rise from a weak quarter a year ago.

WHEN TO BUY THE STOCK
Here is another interesting point the paper makes.. They have k at the end of the stock listing it means the company will be reporting earnings in the NEXT FOUR WEEKS. They say you should begin to watch the company then. ...IF the stock rises sharply on heavy volume for several days, there's a chance the company might report better-than-expected profits.. (here again compare to our 'anticipatory upswing'). If the stock shows weakness on large-volume it's possible the company will report profits that don't meet Wall Street's estimates. (Don't we know that from experience with BBBY)

They go on to talk of historical growth quarter (what we call correlation coefficient being a perfect "1") after quarter for the past year, which we follow as well. They mention looking for earnings acceleration quarter to quarter, which we do.

...And the final and most interesting point they tell you not to forget to check the stock's price chart to make sure you buy at the right time (don't we know that!!). .....You'll want to buy the stock when it breaks out of at least a six- or seven week period of price consolidation on heavy volume. That is one method, but if you are a day trader or swing trader you might want to time your stock buy closer to the earnings date and your six or seven week period might just be a 7 or 20 day moving average.

Anyhow I thought it interesting my favorite daily financial newspaper seems to be coming up frequently with articles that mimic our own trading style. That should confirm that we are on the right path with our 'earnings plays'.

*excerpts of the article above reprinted courtesy of Investor's Business Daily. investors.com;
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