What are we looking for?
Canadian companies that have accelerating earnings growth. Rapidly expanding profits are usually an encouraging sign for investors because increasing earnings can drive share prices higher.
How did we do it?
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Craig McGee, senior consultant at CPMS Morningstar Canada, scoured the CPMS Canadian database for stocks that show a big jump in earnings from one quarter to the next, as well as growing expectations for future earnings.
He looked for stocks that:
- have a market capitalization (the total value of the company’s shares) greater than $300-million.
- display positive quarterly earnings momentum (QEM). This is measured by comparing the company’s latest earnings over the preceding four quarters against the previous four-quarter earnings from the prior quarter.
- have an expected QEM for the next quarter (QENEXT) greater than the latest QEM.
- have an expected QEM two quarters in the future (QENEXT2) that is greater than the expected earnings for the next quarter.
The expected values are based on one or two quarters of consensus earnings estimates from analysts. The list is sorted by the largest difference between QEMNEXT2 and QEM.
More about Morningstar
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Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market.
What did we find?
Only 19 companies met the four criteria in Mr. McGee's checklist. As long as analyst estimates aren't too far off the mark, these companies have increasing earnings momentum that could propel their shares upward.
As always, do your own research before buying any of the stocks listed here.