On Wednesday, the Federal Reserve strongly hinted that it was done raising interest rates and could even cut them up to three times next year.
This was good news for the stock market and will likely drive up share prices for some time.
While the broader market should perform well, stocks with strong earnings growth prospects will likely outperform the broader market. Based on that premise, today I am going to describe a screen to find these actions.
While you can use almost any stock screener to find them, as usual, I'll use the free, easy-to-use program. Finviz Stock Picking Program (finviz.com) to describe my ideas. Here are the details.
Start on the Finviz home page (finviz.com) by selecting "Screener" from the top menu and then clicking "All" to see the available detection filters.
Define candidate universe
Since the US economy remains the strongest in the world, start by using the "Country" filter and specifying "US." to limit your list to US-based stocks.
โMarket capitalizationโ is how most investors define company size. It turns out that โMicro-Caps,โ the smallest company size category (less than $300 million), are also the riskiest. Therefore, using the "Market Capture" filter, specify "+Small" to limit your list to small caps and larger categories including mid-caps ($2 million to $10 billion), large caps ($10 billion to $200 billion) and Mega Caps (more than $200 billion).
Isolate those who grow profits the fastest
Although many other variables can affect share prices, share prices track annual earnings (EPS) more closely than any other factor. Therefore, priority number one is to limit your list to the stocks that are likely to grow your earnings the fastest. Stock analysts spend their days analyzing the earnings growth prospects of the companies they follow. While analysts are often wrong, they are our only practical resource for this information.
So, specify โMore than 20%โ for โEPS Growth this year and โEPS Growth next yearโ and โMore than 15%โ for EPS Growth (average) over the next five yearsโ to narrow down your list. to the best prospects, at least in profits. growth category.
Solid fundamentals
I have found that fundamentally strong stocks, that is, profitable companies with little debt, typically outperform stocks that are not up to par in those categories.
"Return on equity" compares net income to the total amount shareholders have invested, which is "shareholders' equity." Select "Over +15%" to limit your list to the most profitable stocks.
โDebt/Equityโ compares liabilities with net worth (net worth). Select "Less than 0.4" to limit your list to stocks with relatively low leverage.
Screen results
My screen showed seven actions:
โข Aehr Test Systems (ticker: AEHR): manufactures semiconductor test systems. Five-year EPS growth (EPS Gro), 20%, Debt/Equity (D/E) 0.1. Return on Equity (ROE) 28%.
โข DLocal (DLO): Provides payment processing systems to merchants operating in emerging markets. EPS Gro 33%, D/E 0.0, ROE 35%.
โข Gentex (GNTX): Produces products used by automobile manufacturers. EPS Gro 23%, D/E 0.0, ROE 18%.
โข MetaPlatforms (META): Facebook is its main asset. EPS Gro 32%, D/E 0.3, ROE 22%.
โข Progressive (PGR): Personal and commercial insurance services. EPS Gro 26%, D/E 0.4, ROE 17%.
โข ServiceNow (NOW): Provides information technology to large companies. EPS Gro 27%, D/E 0.3, ROE 27%.
โข Shoals Technologies Group (SHLS): Produces electrical products, charging stations for used electric vehicles, solar energy products, wireless monitoring systems, etc. EPS Gro 37%, D/E 0.4, ROE 49%.
These are my ideas, but do your own due diligence. The more you know about your actions, the better your results will be.
Harry Domash of Aptos publishes the websites Winning Investing and Dividend Detective. Contact him at www.winininvesting.com or Santa Cruz Sentinel, 318 Encinal St., Santa Cruz, CA 95060. To view previous columns by Domash, visit santacruzsentinel.com/topic/Harry_Domash.
