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Screening for Stocks With Strong Secular Growth

by John Bajkowski

Screening For Stocks With Strong Secular Growth Splash image

Many growth stocks have performed strongly during the recent uncertain economic times. Investors have been attracted to companies that have been able to improve net income while other firms struggle.

However, the allure of buying into a stock with the potential for a tenfold increase in price must be balanced with the potential for substantial price declines if the company fails to meet the market’s growth expectations. As long as a firm maintains its earnings per share momentum and exceeds the market’s growth expectations, its stock price can be expected to outpace the market. When expectations are high, a small deviation from market expectations in a quarterly earnings announcement can send the price flying in either direction. Over the long run, stock prices are driven by proven company earnings and cash flow, while in the short term, changes in expectation can move stock prices sharply. If you seek out high return potential, then you mu

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John Bajkowski is president of AAII.


Discussion

James from Alabama posted about 1 year ago:

I have just finished reading Screening for stocks with Strong Secular Growth. I find it to be very informative and useful in my future investments.
Thanks,
James Parkman


Vernon from Arkansas posted about 1 year ago:

This is my first Screening for stocks and I find several socks that with which I'm not familiar.I plan to run a tab on these for a period of time to see how good they perform.
Vernon from Arkansas


Jerry from Arizona posted about 1 year ago:

Thanks, great instruction and information.


Leroy from Colorado posted about 1 year ago:

be careful.


Michael from California posted about 1 year ago:

This is getting close in terms of results, to a screen I have used successfully for many years. Some mathematical differences are that I use multiyear averages (instead of year to year), least squares trendline, set a limit on R squared value, set a limit on return on equity, and have fewer limits on sales growth, and set an absolute limit on earnings growth averages, but also put a p/e limit on there too.

Many of the same stocks that show up on this screen also show up on my screen too.


Bob from Texas posted about 1 year ago:

I am unable to replicate the screen from this article is Stock Investor Pro. Can someone help me with what I am doing wrong?


Larry from Michigan posted about 1 year ago:

I cannot find this screen in the Stock Screens section of AAII website. Should I be able to?


Jean from Illinois posted about 1 year ago:

Larry - No, this is not one of the screens that we track on an ongoing basis in AAII Stock Screens. The First Cut column is focused on simple, first-pass screens. -Jean from AAII


Nick` from New Jersey posted about 1 year ago:

After first cut can some one guide what are the next step before we buy and when to sell


John from Kansas posted about 1 year ago:

This is a great earnings and sales growth screen! Since so many stocks passed the screen, it can be improved by adding some some industry-relative value criteria (Price/sales, Price/book, Price/earnings, or Price/cash--or free cash--flow) and then further adding some balance sheet safety factors (like Altman's Z score or Piotroski's F score [a combo or both income and balance sheet factors] and looking for more safety than the median for a given company's industry). Then you have a value/growth company screen that is fabulous!


John from Kansas posted about 1 year ago:

I just programmed the screen for my own use and noted that in lines 8-11 you compare EPS-Diluted Continuing quarterly items with non-diluted EPS-Continuing quarterly of the prior year. This is not quite consistent comparisons---like comparing apples with applesauce. Close but not quite the same. Going from 4/13/12 to 5/18/12 seven dropped off the Bajkowski list (NVO,RHT, ITC, QSII, WTR, TEA, and RUE).

Also, following my post above, the trailing twelve month F scores from Piotroski were 7, 6, 6, 4, 7, 7, and 6, respectively. QSII had no computable Z score and the two utilities were characteristically very low for that industry: .67 and .81--predictive of bankruptcy in two years for non-utilities.


Peter from Florida posted about 1 year ago:

Thank you, Mr. Bajkowski!
This fist-cut screen provoked a lot of further analysis because I have begun to see that Consistency of growth is a valuable attribute, as much or more than the rate of growth. I began trying to find a consitency or secular growth measure in any of the AAII stock screens with out success. Is your screen similar to any of the regularly published screens?
Thanks.
Pete C.


Mike from Ohio posted 8 months ago:

I tried backtesting this at http://keelix.com/backtester2 and did NOT have good results. The lead-in to the article said something about "good times and bad". The companies might have had good earnings, but the stock prices tanked in 2008. I was looking for a screen that gives consistent returns, in good times and bad.

Does anybody know of a screen that gives consistent returns, in good times and bad? I looked at the monthly return spreadsheet for the AAII screens and they all have periods of SIGNIFICANT drops.


Jim B from Washington posted 7 months ago:

Another way to look at the results of the AAII screens is to calculate compound annual returns divided by standard deviation for each series of results from 1998 to 2012. (Download the results in Excel to make this easier.)

Higher values in this measure will highlight those screens with good compound returns and lower variability of returns.

When you do this, several of the screens that use positive earnings surprises and upward earnings revisions bubble to the top.


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