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EPS estimates and revisions - standalone use OR in conjunction with CANSLIM (or your favorite stock picking system)

From: William L.
Sent on: Tuesday, March 31, 2009 4:13 PM

Greetings!

 

At our last AAII Stock Investing Subgroup meeting, we discussed two compelling topics – one of which was Earnings-Per-Share (EPS) estimates and revisions to EPS estimates. The article below appeared in this morning’s (Mar[masked]) IBD newspaper (I also enlarged the table and pasted it to the end of the article) which highlighted the importance of forward-looking EPS estimates (which is NOT part of IBD’s EPS ranking – which captures backward-looking historical earnings data only). However, I believe that the *revisions* to the EPS estimates is equally important, if not more important than the *level* of EPS estimates. The revisions data is what we discussed/reviewed from Zacks (www.zacks.com).

 

[Note: I have a request in to Zacks for their best price for any of our members for their Zacks Premium, Elite and Research Wizard home study course – I hope to pass that info along shortly].

 

Recall that the AAII stock screen for positive earnings estimate revisions of 5% or more is the #5 stock screen of the 56 stock screens tracked by AAII (O’Neil’s CANSLIM is #1).

 

You can also access EPS estimates and recent revisions (last 90 day trend) for a specific stock FREE via Yahoo! Finance (finance.yahoo.com). See the Yahoo! Finance page below for a sample of EPS data using Microsoft stock (MSFT) as an example. Unfortunately, while the Yahoo! Finance stock screener allows you to screen on EPS estimates (next quarter, this year, next year and next calendar year) the screener does not screen on the *revisions* across the entire stock universe. This is where the Zacks service will earn its keep (and price).

 

So, how do you incorporate the EPS revisions into your trading? First, you could make it part of your screening parameters. Second, several of you have asked how to select a portfolio of 10 stocks, for example, if more than 10 stocks pass the screen (which has not been an issue of late – several months have had NO stocks passing the CANSLIM screen). You could rank all passing stocks based on earnings revisions and select the top XX stocks based on the percent of the earnings revisions (another popular ranking is to select the top XX stocks based on highest relative strength). Keep in mind that the stock price ought to already have factored in these EPS estimates and revisions to some degree. That is, if a particular stock is declining in the face of lower EPS estimates, it would weaken the relative strength and would negatively impact the chart pattern (cup-n-handle, double bottom, etc.). Likewise, if a stock is increasing in price in light of higher EPS estimates, it will show up in the relative strength and the chart pattern. That said, all things being equal (which they never are, of course) I would prefer to select a stock with recent, significant, positive EPS revision(s).

 

Regards,

Bill Lyman

Organizer, AAII Atlanta Stock Investing Subgroup – www.meetup.com/stockinvesting

Organizer, AAII Atlanta CANSLIM/IBD Stock Investing Meetup – www.meetup.com/canslim

VP & Programs Chair, AAII Atlanta – www.aaii-atlanta.com

 

 

 

 

 

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