Accelerating earnings are a hallmark of top growth stocks preparing to breakout. Studies by IBD founder William O’Neil showed that earnings acceleration occurred in almost every case sometime in the 10 quarters prior to a stock breaking out and making a big upward move.
That acceleration often reveals a basic change in company performance: new products, new initiatives, rising market share or a change in customer preferences.
One of the most powerful tools to help investors pinpoint leading stocks with rising earnings estimates is IBD’s Stock Screener.
To find the stock screening tool, go to the “research” pulldown option in the menu that runs across the top of the Investors.com homepage. On the left hand side of that list you will see “IBD Stock Screener.” After clicking through to that “Stock Screener” page, there are three pulldown menus across the top of the page. Under the first of those — the “IBD Stock Lists” option — you will find the “Rising Profit Estimates” item.
Top Growth Stocks: Builders FirstSource, Evercore
Many top stocks on the list are extended from buy points, sitting atop healthy price runs. Builders FirstSource (BLDR), AutoNation (AN) and Century Communications (CCS) are just a few examples. Century is worth watching to see whether the stock’s current base pattern becomes a bullish ascending base.
Investment banker Evercore (EVR) is queued up below a 144.23 buy point in a six-week flat base. It is the stock’s first base since its breakout from its pandemic bear market consolidation in September. Shares rose 125% from that breakout until a new consolidation began.
But earnings are the point here, and the New York-based firm’s earnings turned positive in the fourth quarter, up 108% to $5.67 a share, following four quarters of declines. Consensus projections for the first quarter call for a 112% gain, to $2.56 a share. The company has topped analyst earnings targets in each of the past three quarters, by margins ranging from 10% in Q2 2020 to 192% in Q3 2020.
However, annual earnings are not accelerating. Evercore’s 2020 EPS rose 25%. Earnings projections for 2021 and 2022 call for 9% gains each year. Analysts are likely being cautious in a period when visibility into economic activity over the next 12 months is murky at best.
And the annual forecast may not matter for the current base, in an environment so keenly tuned to speculation — especially if the company posts a strong earnings beat and raises guidance. The stock shows a 96 Composite Rating from IBD and a 92 Relative Strength Rating.
Brunswick’s Earnings Advance
Another top growth stock on the list is Brunswick (BC). Brunswick manufactures Mercury marine outboard motors and a long list of other recreational equipment, including Boston Whaler and SeaRay boats. The stock’s chart had been in the doldrums since 2017, with back-and-forth earnings growth and no real sense of direction.
Brunswick notched a 28% gain in 2020, which included a breakout from a 16-week cup base in November. The breakout occurred just as the company reported that earnings soared 64% in the third quarter – Brunswick’s best performance since Q1 of 2015.
Shares ran up 46% to mid-March, when the top growth stock began its current base. Shares are currently just below a cup-base buy point of 107.95. The chart has also formed a handle with a 106.20 buy point. For now, investors should consider this an alternate, early entry. If the base finishes one more week below that buy point it would become an undisputed cup-with-handle base, and that handle buy point would become the best buy point.
Analyst forecasts for the first quarter project a 48% earnings gain (to $1.44 EPS) and a 25% rise in revenue. For 2021, estimates see a 27% earnings advance to $6.43 a share, up from a 17% gain for 2020.
Among the others on the list of top growth stocks, Boston-based design software firm PTC (PTC) was adding a fifth day to its rally on Monday, after a dip to the 50-day moving average. That rebound also retook a 147.77 buy point in what IBD MarketSmith analysis charts as a six-week cup base.
Find Alan R. Elliott on Twitter @IBD_Aelliott
YOU MAY ALSO LIKE: