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Four stocks with strong earnings forecasts

A man looks at the index screen at the Warsaw Stock Exchange in Warsaw August 10, 2011.

Kacper Pempel/Reuters/Kacper Pempel/Reuters

During Monday's market rout, a number of analysts and pundits weighed in with the view that "fundamentals don't matter." Stocks with stellar sales, earnings, margins, and return on equity got pulled down in the vortex, along with everything else.

However, over the longer term, the best growth winners in bull markets hail from the ranks of companies that sport outstanding fundamental growth.

The technical damage done to market leaders is considerable at the moment, with even the fundamental leaders correcting from previous price highs.

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Of course, the usual suspects among big growth leaders include companies with fundamental performance known to be outstanding. Those include Lululemon Athletica , Netflix , Apple and Green Mountain Coffee Roasters .

Those have gotten plenty of attention, and growth investors are aware of their track record and their potential for further price gains, once a new market uptrend emerges.

But there are also some top fundamental performers that don't get as much media attention. Often, these are small or mid-caps, and therefore are not held by as many institutions. Some of these lesser-known names with top-notch sales and earnings records can be good additions to a growth portfolio.

Diamond Foods , whose brands include Kettle potato chips, Emerald nuts, and Pop Secret popcorn, has grown earnings every year since 2007. In the past two quarters, profit was up 90 per cent and 73 per cent, while sales grew 40 per cent and 61 per cent.

Wall Street expects more tasty earnings growth ahead. Profit is pegged at $2.53 per share for 2011, and $3.10 per share in 2012. Those would mark year-over-year increases of 32 per cent and 23 per cent, respectively.

The stock went public in late July 2005, so it has youth on its side. Often, institutional investors jump into stocks that have gone public in the past decade or so, since newer names tend to be among the market's best price performers.

Diamond has, of course, corrected along with the general market in recent weeks. It was probably due for a breather, having gained nearly 300 per cent between January 2009 and July of this year.

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If the fundamental story of this small cap remains intact, Diamond is a name to watch for a fresh rally when the broader market stages its next run-up.

Diamond's products are recognizable to many consumers. But point-of-sale software maker ACI Worldwide is hardly what you'd call a household name.

The New York-based small cap has shown earnings growth in the past two years, going from 42 cents per share in 2008 to 67 cents in 2009, then to 80 cents last year. That trend is expected to continue, with growth of 56 per cent expected this year and another 22 per cent in 2012.

Sales growth has accelerated in the past three quarters. That's always a good sign, since it's an indicator of demand when a company's earnings rise on revenue increases, rather than cost cuts.

Share price has appreciated along with the earnings performance. It's up nearly 12 per cent year-to-date, including a steep 17 per cent pullback along with this month's market downturn.

Like the other stocks mentioned here, ACI is not a buy candidate at the moment, but is worth tracking as general market conditions improve.

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Use some caution if you decide to eventually take a position in ACI. It moves only 194,000 shares a day, which is on the thin side. Thinly traded stocks can be prone to more volatility than more liquid issues.

A mid-cap whose fundamentals also tell a good tale is Alexion Pharmaceuticals . It, too, has shown healthy chart action since rallying out of the bear-market bottom in 2009.

The Connecticut-based biotech makes treatments for cancer, autoimmune disorders, and neurological diseases, among other ailments.

The stock was sold off heavily last week in the market pullback. So far, it's getting support above its 40-week moving average.

It's been profitable every year since 2008, and posted earnings increases in 2009 and 2010. Sales growth has trended higher over the past six quarters, with revenue coming in at $187.5-million most recently, a gain of 48 per cent from a year ago.

Alexion is expected to show earnings growth of 31 per cent for this year, to $1.17 per share. For 2012, analysts expect earnings per share of $1.58, an increase of 35 per cent.

Oil-and-gas gear maker Robbins & Myers showed earnings declines in 2009 and 2010, but has begun to turn things around. Sales growth has picked up in the past four quarters, following some quarterly declines.

Earnings are expected to come in at $2.33 per share this year, a gain of 131 per cent over 2010. Next year, Wall Street sees profit up another 30 per cent, to $3.03 per share.

This is another compnay whose shares have suffered dramatically in the market retreat. Shares are currently trading just south of their 40-week moving average. It's not uncommon for smaller growth stocks to correct at a steep rate as the general market declines.

Robbins & Myers has a market cap of about $1.8-billion, and it moves about 522,000 shares per day, so it's in the category of less-liquid names.

The earnings growth expectations could bode well for eventual price growth of this company, but again, it's best to let the stock prove itself technically before attempting a position.

Wait for some heavy-volume buying to push the stock higher again. That would be a signal that institutions have resumed their buying.

At the time of publication, Kate Stalter did not own positions in any of the stocks mentioned in this column.

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