Michael Michaud's  Instablog

Michael Michaud
Send Message
Michael Michaud is the founder of Invest2Success.com (http://www.invest2success.com/) and the Invest2Success Blog (http://invest2success.blogspot.com/). He has been investing and trading in the financial markets since 1989. He founded Invest2Success.com to empower individual institutional... More
My company:
Invest2Success
My blog:
Invest2Success Blog
  • The Other Kind Of Stock Price Momentum 0 comments
    Jun 1, 2013 7:31 PM

    Zacks Investment Research

    Profit From Zacks Investment Research Earnings Estimates Revisions Free Trial of Zacks a leading investment research firm focusing on equities earnings estimates and stock analysis for the individual investor, including stock picks, stock screening, portfolio stock tracker and stock screeners. "Earnings estimate revisions are the most powerful force impacting stock prices" Zack Investment Research Founder Leonard Zacks, Ph.D. Mathematics M.I.T.

    The Other Kind of Stock Price Momentum by - By Zacks Investment Research

    At the end of every year, major publications like the Wall Street Journal produce a list of stocks with the biggest gains.

    What do these stocks have in common?

    Almost without fail these companies experienced a surge in earnings that greatly surpassed expectations - and the stock subsequently soared. Another term for this surge is positive earnings momentum.

    On the flip side, stocks that fell the most during the year experienced negative earnings momentum. To sum it up:

    • Good earnings beget more good earnings beget higher share prices

    • Bad earnings beget more bad earnings beget lower share prices

    As investors, our goal is to line our portfolios with as many stocks experiencing positive earnings momentum as possible. That's because this one element is the key catalyst behind share price momentum.

    How do we find more of these stocks?

    First we must understand the dynamics of earnings momentum...

    Dynamics of Earnings Momentum

    Publicly-traded companies are large organisms that include many employees, products, buildings, equipment, etc. When they are experiencing positive earnings momentum, it means that most everything is going right; i.e. a great management team, first rate products and services, happy employees and delighted customers.

    These aspects have a self-reinforcing quality that will keep the company headed in the right direction for an extended period of time. The result being a string of earnings reports well above expectations and a booming stock price.

    However, the company experiencing negative earnings momentum will behave in the opposite way; a poor management team, inferior products and services, disgruntled employees and dissatisfied customers fleeing to the competition. As you know, this is very bad for corporate profits and thus the stock price.

    I like to think of a company as a large freight train stretching as far as the eye can see. When things are going well, the train just keeps rolling down the track. There is a positive rattle and hum to that train that everyone enjoys.

    Now imagine the conductor notices that the train is going in the wrong direction. The train is headed south when it needs to go north. Now ask yourself how much time and energy does it take to stop that train? Even worse, how long will it take to back the train up to a spot where it can turn around?

    The same is true for a large company that's headed in the wrong direction. Do you think it can be turned around in one quarter? Or two?

    History shows that not to be the case. Yet too many of us are content holding onto stocks that have earnings disappointments only to see share prices continue to plummet. I cannot say this emphatically enough...

    SELL ALL COMPANIES WITH NEGATIVE EARNINGS SURPRISES...IMMEDIATELY!!!

    How to Find Companies with Positive Earnings Momentum?

    It's actually quite easy. Len Zacks scientifically proved over 30 years ago that companies receiving increased earnings estimates from brokerage research analysts will more likely beat earnings expectations in the future. The essence of his finding was placed into our Zacks Rank stock picking model.

    You've probably heard us pound our chest about the +26% annual return for the #1 Ranked - Strong Buy stocks. We couldn't say it if it wasn't true.

    However, on any given day there are more than 220 stocks with a #1 Ranking. Even if you gave up your day job it might be hard to stay on top of all these attractive stocks.

    So the Question Becomes: What to Do Next?

    We now offer a unique way to take full advantage of the Zacks Rank. It will make investing easy because it gives you access to several private portfolio recommendation services each with a handful of stocks to serve a variety of investment styles. For example, Breakout Growth Trader, Market Timer, Value Investor, Turnaround Trader, Home Run Investor, Options Trader, Whisper Trader and more.

    Which of them fits you best? The best way to select the service that's right for you is to try them all. So I invite you to look into our Zacks Ultimate trial program, which gives you access to every one of our stock-picking services, even those currently closed to new members.

    Today I am inviting you to see all of our real-time trades and insights for the next 30 days with an arrangement that no other investment research firm has ever offered. You get everything for a total of $1. And there won't be 1 cent of further obligation.

    Click Here for a Zacks Investment Research Free Trial

Back To Michael Michaud's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.