The Matras Increasing Earnings Approach
Kevin Matras, a vice president with Zacks Investment Research and author of “Finding #1 Stocks: Screening, Backtesting and Time-Proven Strategies” (John Wiley & Sons, 2011), is a big advocate of stock screens. He strongly believes that a stock screen is necessary for finding good stocks.
Matras is an active trader, preferring to turn his portfolio over quickly rather than engage in long-term positions. This comes from his preference for stocks showing a potential to move upward in price over the short term. Though he does look at charts, Matras relies heavily on the concept of earnings momentum to find what he considers to be good stocks. This may include past earnings growth, recent upward revisions to earnings estimates or a combination of the two.
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Many of Matras’ strategies are presented in his book. A large number of these screens are based on the proprietary Zacks Rank indicator, which looks at changes to earnings estimates and earnings surprises (see the sidebar on page 32 for more information). Some of them are not, including the screen featured in this article, Increasing Earnings.
Matras emphasizes a positive trend in earnings because, as he puts it, “In good markets or bad, strong earnings are one of the most important things that influence stock prices.” He considers rising earnings to be a key factor that separates great stocks from merely good ones. His Increasing Earnings screen applies this concept by looking for six consecutive quarters of rising earnings and the expectation that earnings will rise for at least an additional two quarters.
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