There is an excellent effect of earnings revisions on stock prices. I believe these are also some of the major factor behind the Zack’s ranting system.
The PPT has a screener that can help you with this as well, to go with the Fly’s updates and the communities comments on stocks, and of course the main reason to subscribe is the hybrid score.
But I digress… this is not an infomercial, but instead is about using a screen to identify such stocks.
I will use Zacks free screener so the freeloaders have a chance to try it out.
Now you can look at several factors from here, it depends on how strict you want to be.
Personally I like companies with a cash ratio of 1 or more, high profit margins, and high ROE. But sometimes I will manually go through this list of 100 names and plug them into wikiwealth or gurufocus and look at the valuations. Then I sort the top several and post it to finviz and look at the charts. But it’s up to youl. Instead, lets take the abbreviated version.
Earnings surprises can be one factor to use as well, but today I run the following screen.
Optionable=Yes (my personal preference)
Market Cap > 100M
% Change LT Growth Est. (4 weeks) > 10
Cash Ratio>1
ROE>10
Net Margins>0.10
Results: BIIB,DV,FRX,LSCC,XLNK
Some options have a lot of the expected gain cooked in, others don’t. So you will have to come up with expectations of price and a timeframe and determine where the risks and rewards lie and how much capital you should risk as a result. I like to relate things by using the kelly criterion and a kelly criterion calculator so I have a measurement of risk and reward, a expectation of gain relative to another where both are equivalent in risks to assess the situation. Certainly this is a bit of guesswork. Certainly because of the lack of certainty of probabilities, you have even more reason to risk less than the kelly, but as I have stated before decreased correlation and investment size can increase return.
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