Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings. Earnings growth — and growth stocks — enthralls almost everyone, right from the top brass to research analysts. And why not? If the company doesn’t make money, it won’t last over the long haul.
This metric is also considered a key variable in influencing the share price and determining whether you should add a name to your stocks to buy list. Better-than-expected earnings performances normally lead to a rally in the share price. However, in addition to actual earnings, expectations of earnings play a significant role in influencing the price of a stock.
Earnings Estimates Determine Share Prices and Stocks to Buy
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.
Earnings estimates embody analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins and cost control. Thus, earnings estimates serve as a valuable tool while making investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.
Investors, thus, should be on the lookout for growth stocks that are ready to make a big move. Hence, it is important for investors that are looking for stocks to buy to focus on companies that have historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.
The Winning Strategy With Growth Stocks
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we have 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 earnings-per-share 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 20 growth stocks to buy.
Here are the top four stocks growth stocks to consider:
Best Growth Stocks
Lululemon Athletica (NASDAQ:LULU), an athletic apparel company, together with its subsidiaries, designs, distributes and retails athletic apparel and accessories for women, men and female youth. LULU stock has a Zacks Rank #1 (Strong Buy). The company’s estimated growth rate for this year is 38.2% versus the Textile – Apparel industry’s expected increase of 19.3%.
Sirius XM Holdings Inc (NASDAQ:SIRI) provides satellite radio services in the United States. The company has a Zacks Rank #2 (Buy). The company’s estimated growth rate for this year is 30% versus the Broadcast Radio and Television industry’s expected increase of 3.5%.
Kohl’s (NYSE:KSS) operates as an omni-channel retailer in the United States. The company has a Zacks Rank #2. The company’s estimated growth rate for this year is 30.8% versus the Retail – Regional Department Stores industry’s projected increase of 21.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Olympic Steel (NASDAQ:ZEUS) processes and distributes metal products in the United States and internationally. The company has a Zacks Rank #1. The company’s estimated growth rate for this year is 173.7% versus the Steel – Producers industry’s expected increase of 22.3%.
You can get the rest of the growth stocks to buy on this list by signing up now for your two-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.
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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