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5 Stocks to Buy as Curtains Drop on Q4 Earnings

These metrics point the way to highly rated Zacks picks

Irrespective of whether a company is a fledgling or established one, steady earnings growth interests all. And why not? If the company doesn’t make money, it won’t stand the test of time. Take a company’s revenue over a given period of time, subtract the cost of production and, there it is, you have earnings!

This metric is also considered to be the most noteworthy variable in influencing the share price. Better-than-expected earnings performances normally lead to a rally in the share price. However, expectations of earnings also play a significant role in influencing the price of a stock.

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 is largely a result of a company’s earnings failing to meet market expectations.

So, what are earnings estimates? It embodies analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins and cost controls. Thus, earnings estimates serve as a valuable tool while taking investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.

As the fourth-quarter earnings season is on track to be the best ever, we have picked stocks that have displayed historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates. As of Feb 17, 411 S&P 500 members have reported their earnings figures. Earnings for these members are up 8% on 4.9% higher revenues, with 68.9% beating EPS estimates and 54.7% surpassing top-line expectations (read more: Retail in Focus as Q4 Earnings Season Winds Down).

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.)

  • 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 7,818 stocks to only 16.

Here are the top five stocks:

Royal Caribbean Cruises Ltd (RCL) operates as a cruise company. The company’s estimated growth rate for this year is 15.4%, higher than the industry’s gain of 8.7%. The Zacks Consensus Estimate for its current year earnings increased 3.5% over the last 60 days. Royal Caribbean Cruises has a Zacks Rank #2 (Buy).

Pool Corporation (POOL) is a distributor of swimming pool supplies, equipment and related leisure products. The company’s estimated growth rate for this year is 14.8%, higher than the industry’s gain of 10.2%. The Zacks Consensus Estimate for its current year earnings advanced 4.7% over the last 60 days. Pool sports a Zacks Rank #1 (Strong Buy).

Cracker Barrel Old Country Store, Inc. (CBRL) develops and operates the Cracker Barrel Old Country Store concept in the U.S. The company’s estimated growth rate for this year is 9.2%, higher than the industry’s gain of 7.5%. The Zacks Consensus Estimate for its current year earnings increased 0.1% over the last 60 days. Cracker Barrel Old Country Store has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kate Spade & Co (KATE), together with its subsidiaries, designs and markets apparel and accessories. The company’s estimated growth rate for this year is 26.3% in contrast to the industry’s negative return of 6.8%. The Zacks Consensus Estimate for its current year earnings improved 2.3% over the last 60 days. Kate Spade has a Zacks Rank #1.

Applied Materials, Inc. (AMAT) provides manufacturing equipment, services and software to the semiconductor, display, and related industries. The company’s estimated growth rate for this year is 47.7%, higher than the industry’s gain of 27.7%. The Zacks Consensus Estimate for its current year earnings rose 7.1% over the last 60 days. Applied Materials has a Zacks Rank #1.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

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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Pool Corporation (POOL): Free Stock Analysis Report

Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report

Cracker Barrel Old Country Store, Inc. (CBRL): Free Stock Analysis Report

Applied Materials, Inc. (AMAT): Free Stock Analysis Report

Kate Spade & Company (KATE): Free Stock Analysis Report

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