Look for earnings growth in your candidate stocks!
In both bullish and bearish markets, one can find stocks with good growth potential. The key is in selecting them according to pertinent measures of valuation. In other words, screen to find what screaming Jim Cramer would call "forgotten, forlorn, and undiscovered stocks." Like a foxy debutant, they will be stars someday, yet no one dances with them now.
Useful criteria are measures such as a stock's debt to equity, price to sales, price to book, and PEG ratios. All of those should be lower than their peers. These are companies worth something that just aren't priced accordingly. In addition, the insiders should own a substantial amount of company stock.
Stocks in the table below feature strong earnings and earnings growth. They are competitive and expected to thrive in their industries. Earnings growth is an indicator of a company working on fertile ground and likely to grow and profit in the future - driving up its stock price!
A stock's future valuation can be estimated using its current price and PEG ratio, with consideration given to its debt levels:
What really happens is that a positive earnings report triggers buying, and a surprisingly strong growth in earnings triggers a day of frenzied irrational buying. Screen for good candidate stocks and evaluate their industries and particular company activity. Then buy prior to the frenzy...
Stocks that pass the initial screening should then be investigated in detail prior to purchase, and the ones without improving fundamentals eliminated from further consideration. Go with the rising stars.
Stocks with strong and increasing earnings growth: