Research shows that earnings growth is the single most important indicator of a stock's potential to make a big price move. The stocks you select should show a major percentage increase in current quarterly earnings per share (the most recently reported quarter) when compared to the prior year's same quarter.

Winning Characteristics

• Large increases in current quarterly earnings per share. Look for these increases to be at least 25%. (Three out of four of the best-performing stocks in our research showed earnings increases of 70% or more in the quarter right before they started to make their huge price moves!)
• Preferably, look for accelerating earnings in at least the three most recent quarters.
• Check earnings consensus estimates to make sure the company is projected to be on a positive track.

Investing Tip: The best stocks often have high - some would say ridiculous - P/E ratios when they start their big climbs. If you weren't willing to pay the higher P/Es, you eliminated most of the best stocks of all time.

How to Identify Companies with Superior Earnings Growth

Investor's Business Daily and investors.com make it easy to identify companies with superior earnings growth:

• An Earnings Per Share (EPS) Rating is provided for all stocks in our database. This proprietary rating measures a company's earnings performance by looking at its: 1) latest two quarters' earnings per share growth, 2) 3-year annual earnings growth rate, and 3) stability of annual earnings growth. These factors are then weighted and compared to the same measures for all other public companies.
• EPS Ratings are on a 1-99 scale, with 99 being highest. An 80 EPS Rating, for example, indicates that a stock is outperforming 80% of all other companies based on earnings performance. In other words, a stock with an EPS Rating of 80 is in the top 20% of all companies in terms of recent quarterly and annual earnings growth. Research shows that the stocks that make the most powerful gains usually have an EPS Rating of 80 to 85 or higher.
   
  Where Can I Find Earnings Per Share (EPS) Ratings? EPS Ratings can be found in IBD's main stock tables and the IBD Stock Checkup® and IBD Charts on investors.com.
   
• Domestic companies generally report their earnings four times a year. Investor's Business Daily's "Earnings News" section provides comprehensive earnings reports. To make finding earnings leaders easier, IBD separates these reports between companies posting earnings gains and those reporting lower results. The list is arranged by order of highest percentage gains in earnings to save you time. IBD also provides a "Best Ups" section to help you zoom in on the absolute best earnings reports. The number of companies in each of these categories gives you an overall idea of whether corporate earnings are healthy or not.
   
  Where Can I Find Earnings Reports? Quarterly earnings reports are provided in the "Earnings News" section of Investor's Business Daily. Earnings information is also available in IBD Stock Checkup®.
   
• Another source for identifying companies with superior earnings is IBD's "Your Weekly Review," produced each Friday. This feature lists stocks that rank in the top 15% of all companies in earnings performance. In addition, these stocks must pass rigid performance criteria in order to make the list (85 in both EPS and RS Ratings) and must be within 15% of their 12-month price high. Make sure you view this prospect list for potential new investment ideas.
• Black-bar highlighted stocks in IBD's main stock tables identify stocks you may want to research further. In addition to having strong earnings, these companies possess top growth fundamentals, including sound profit margins and ROE figures.