Search For Stocks With Fattest Profit Growth | stockbee


Search For Stocks With Fattest Profit Growth

Today Investor's Business Daily has a piece on stock selection and importance of earnings and earnings acceleration in stock selection process.

What determines the value of a stock? Earnings, quarterly and annually. Current results and profit expected a year from now. These are the driving forces behind a stock.

True, the CAN SLIM model tells us to look for a recognizable base pattern, and to gauge volume against price action, and to track how many high-quality funds own the stock.

Watch that 10-week moving average. Are there too many stock splits? What is so special about Baidu's (BIDU) product that would make its stock fly?

But the bottom line is the bottom line.

Here's what you want to see in a company's profit record. Quarterly earnings gains of at least 25% over its year-earlier comparison. The higher the better. You don't want to see any profit shrinkage in recent quarters.

Slightly below-par results may be acceptable if they're moving in the right direction. For instance, a 20% gain in quarterly earnings doesn't look so hot.

But if it comes after a string of results that look like 3%, 8% and 15%, then the company is accelerating its earnings growth. If earnings growth is moving in the right direction, often the stock's price will follow.

Ideally, you want both fat numbers and acceleration. But be warned, that's a tall order.

Now look at annual earnings. The most recent full-year profit also should be at least 25% higher than the previous year. The three-year earnings growth average should come in at no less than 20%.

Which direction are the annual profit growth rates going? Just like the quarterly results, you want to see improvement from year to year. Any significant year-to-year earnings decline would be a big problem for a stock.

Too often, a stock that looks like a leader shows a big flaw in its annual profit growth.

Such a stock still could have great quarterly numbers, but one can easily end up buying a high-profile winner just as it's cooling off. Keep that big picture in mind.

Market corrections like the one we are currently witnessing are good time to focus on such stocks. These stocks withstand such corrections. Even if they pullback, they do it reluctantly. Most of the chart patterns which IBD talks about form during such market correction. When the weight of the market correction is lifted from such stocks, they just bolt out.


Mike said...

Pradeep, sorry to sound stupid but which one of your many, many lists should one look at to find such stocks as noted in the IBD article you just posted?

I am not an experienced investor- one that is getting killed on some stocks that had great fundamentals (MTW, etc). I want to create a watch list of solid companies to buy whenever there is a an "all clear buy sign" from you or any other experienced investor.

thanks for the great work on your vacation time-much appreciate what you do for free (others would be charging by now).


MktSwimmer said...
This comment has been removed by the author.
Mkt swimmer said...

Pradeep is in India to set a fund and is not available to answer your question. I try to help. First of all, I am one of his many fans, and I started using his list for investing. Because of the short duration I tried, I can not possitively say it is working or not. But one thing is for sure, he is giving a lot of thought to it and it makes sense to me.

Now, regarding to the lists, he recently recommending just take a vacation, don't touch anything, untill everything settles down then you can find good stocks in his list.

Well, if you don't have that kind of patience (same here BTW) I created a new blog "" and select one or two stocks from his list. Today the market condition is not good, I posted a short, but I do have a long which I did not post yet. I just give it to you for you to try: CFSG.

Disclaimer: invest on your own risk, I just started doing this for fun. Don't take it as the face value, do your own homework. Hope this helps. Visit my site if you are interested.

christmasfern said...

Sometimes you have to know when NOT to play the game. Right now is not a good time in my opinion. Probably during q3 earnings season there will be some nice opportunities. The market is extremely challenging right now and nothing seems to be working very well. Despite the market being down so much I think there are still too many dip buyers in play. I think other areas of the market are vulnerable to have their turn getting knocked down like tech and emerging markets. This is why I believe a correction we are in will take 2-3 months in time duration even if we are almost certainly more then half way through the total decline. The May '06 correction took 2 months to work through even though it was only a 7% drop.

Im busy planning a vacation right now to Utah for 1 week.

Mike said...

thanks markt swimmer. i will take a look at your blog.

there are so many lists on pradeeps site that i get confused as to which ones he refers to.

Stock Market Detective (SMD) said...

I think the worst is over today.

We should get a nice strong move up in stocks next week. All the FEAR will become just a memory.
We also have option expiration next week.

Investors were trembling with FEAR today...but the market did not move as most expected like a "Market Meltdown".

Mkt swimmer said...


The stock picks for next week are out. Waiting for your comments


Mike said...

Mrkt Swimmer IBD gives CFAG an awful overall rating of D. It has very poor fundamentals and awful technicals. Is there a reason why you see it as a great long term buy? I have yet to dd it other than look it up on IBD.

I will dd your other recommends.


Mkt swimmer said...


My computer program picked up CFSG based on the following:
Trail PE=19.5
Forw PE=12.1
Growth this year=67.9%
Next Y=11.6%

Cash/Sh=0.375 Debt=0

RSI=30, CCI=-128
STO(14,3) was 15, now 21 --> bounce up

Price action:
This year range 4.5 - 9.7
Retraced back to 6.5 recently, down 40% from 52wk high.
100 day MA ~ 5.8, if you can enter around 6.0, put a stop loss you are in good shape.

Again, I am not defending my pick (or my mechine pick, by the way, I am defending...), I am not convince you to buy this stock (don't buy as matter of fact). I am a data junky, if want to see if the data mean any thing. Even the numbers do look good, I can not ganrranttee you the analysts are not faking the numbers.

Besides, Motley fool recently said:

We had another interesting meeting with China Fire & Security (Nasdaq: CFSG), a tiny fire-safety company headquartered in Beijing that recently listed on the Nasdaq. The company is poised to take advantage of China's rapid industrialization and increasing emphasis on safety.

Asia is full of smallish companies with wide market opportunities ahead of them. They can't all be prime targets for investment dollars, but there's a lot of reward to be had by identifying the ones that are.

Good luck,

Mkt Swmr

P.S. Find a good stock just like a French Pagaignt, not to look for you think is the prettiest, but to guess what other judges think is the prettiest.

antonio said...

I was using the TC2007 scan
(C1/C66)-1 >= 0.25 and I only got 377 stocks that is 25% plus in 65 days, which is different from the 487 figure that you got. Have you got any idea where the difference comes from? It is basically different for everyday b4 as well.

Mike said...

seems that price action in the market is the same now as prior to the crash of 2000

are we on the verge of a crash?

antonio said...

Hi Pradeep,

What is the point to add the .01 in the 260D growth formula?

Pradeep Bonde said...

To avoid 0 error. Some stocks have no trading data on some days which leads to error in calculation.