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Earnings, continued
Acceleration Is Also Important
Many stocks that make major advances have another trait. Their earnings accelerate over the previous three or four quarters. Acceleration represents an increase in the earnings growth rate quarter over quarter.
Shares of Cree Inc., the maker of semiconductor devices, were at $20 in May 1999 when it began an ascent that took it past $100 by early 2000. Before this jump began, its quarterly earnings grew 67%, 71% and 86%.
Improving bottom-line growth, such as Cree's, nearly always precedes a burst in stock price. What's important to realize about this is that it's not just rising earnings that make a good stock. The key is to focus on companies whose earnings may be drawing professional investors' attention -- the phase when a stock prepares to spring higher. (For a detailed description of the importance of volume and institutional sponsorship, see "Sponsorship: Catching The Stocks The Pros Are Buying.")
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Related Resources:
Click here to get the 7 Steps For Selecting Winning Stocks, according to the CAN SLIMTM Investment Research Tool.
Go to the Investor's Corner Archives to read IBD's "editor picks" of classic Investor's Corner columns.
Search our archive of Ask Bill O'Neil Q & A's organized by topic.
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