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What are we looking for?

The U.S. second-quarter earnings season has just started. So far, only 22 out of 498 companies in the S&P 500 index have reported their latest earnings results. Next week we will see earnings from large financial companies such as Bank of America, Charles Schwab and Morgan Stanley. Last earnings season saw positive earnings surprises in the industrial, materials and consumer discretionary sectors with industrials having the largest earnings growth of any sector at 22.46 per cent, thanks to a strong recovery in U.S. airline earnings. This week we put our most comprehensive earnings screen to work in order to find U.S. stocks that are indicating strong price and earnings momentum.

The screen

We used Trading Central’s Strategy Builder to search for U.S stocks that are indicating a history of strong earnings-per-share growth and high Factor Ratings in quality and momentum.

We begin by setting a minimum market capitalization threshold of US$5-billion. We’re focusing on mid- to large-cap names in the market in order to avoid the more volatile stocks of smaller companies.

Next, we screened for stocks that have a five-year historical EPS growth of at least 20 per cent. We like companies that have a proven track record of increasing their earnings per share.

Finally, we factored in investing metrics from Trading Central’s Quantamental Rating method: quality and momentum. The TC quality Factor Rating measures the total financial strength of the company in regard to profitability, the robustness of its balance sheet, and earnings strength, while the TC momentum Factor Rating refers to the likelihood of winning stocks to continue performing well in the near term. We set a minimum rating of 70 out of 100 for both factors in order to filter for the top-rated stocks.

For informational purposes, we have also included the recent stock price, dividend yield, price/earnings ratio and one-year price return.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and around the globe.

What we found

U.S. Stocks with Earning Potential

RANK COMPANYTICKERMKT.CAP. ($Bil) RECENT PRICE ($)TC MTM.FCTR.RTNGTC QLT.FCTR.RTNG5Y HST. EPS GRTH (%)P/EYTD PERF. (%)1Y PERF. (%)
1Toll Brothers IncTOL-N8.9881.83847428.026.6464.6070.60
2Deckers Outdoor CorpDECK-N14.47549.07907640.1728.5738.60104.20
3Clean Harbors IncCLH-N8.99166.35767333.8420.6145.6094.10
4Churchill Downs IncCHDN-Q9.91134.03807831.3618.3525.2031.60
5Apple IncAAPL-Q2984189.98858721.5532.1646.1030.40
6Vertex Pharmaceuticals IncVRTX-Q89.13348.18837565.2627.5719.8019.90
7Arista Networks IncANET-N50.57165.24847826.1334.1735.2066.90
8Microsoft CorpMSFT-Q2507340.37847624.3236.5340.6033.40
9Dynatrace IncDT-N15.8654.87797661.7146.2441.3045.20
10Cintas CorpCTAS-Q50.14494.73817321.6139.579.230.60
11Franco-Nevada CorpFNV-N27.93146.73767327.9341.637.19.90

Source: Trading Central

Topping our list is luxury home builder Toll Brothers Inc. TOL-N. The stock has the best year-to-date price gain on our list at 64.6 per cent. The company has a five-year historical average EPS growth rate of 28.02 per cent. The TC momentum and quality Factor Ratings are at 84 and 74 out of 100 respectively, which are very strong. The stock is trading at a new record-high and continues to trend higher above its 20-day price moving average. The company is expected to report third-quarter earnings on Aug. 23.

Tech giant Apple Inc. AAPL-Q has the highest market cap on our list at US$2.98-trillion. The company has five-year historical EPS growth of 21.55 per cent. It has the highest quality Factor Rating on our list at 87, which is also the highest in its industry. The stock price has pulled back slightly since posting a record high on June 30. The company is expected to report third-quarter earnings on Aug. 3.

Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five year historical period with quarterly rebalancing, the screen described has a 9-per-cent annualized total return, which is in line with the performance of S&P 500 index over the same period.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 22/04/24 4:00pm EDT.

SymbolName% changeLast
TOL-N
Toll Brothers Inc
+1.43%113.81
DECK-N
Deckers Outdoor Corp
+1.23%810.22
CLH-N
Clean Harbors
+0.9%195.45
CHDN-Q
Churchill Downs IN
+1.5%120.74
AAPL-Q
Apple Inc
+0.51%165.84
VRTX-Q
Vertex Pharmaceutic
+1.43%399.92
ANET-N
Arista Networks Inc
-0.25%245.47
CTAS-Q
Cintas Corp
+0.56%665
FNV-N
Franco Nev Corp
-2.68%118.22
DT-N
Dynatrace Inc
+0.31%45.54

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