My big brother gave me Louis Navellier's The Little Book That Makes You Rich for the holidays. It was on my wish list because being a value investor, I am intrigued and a bit ignorant of how to pick great growth stocks.
Navellier bases his picks purely on the numbers (says it takes the emotion, so deadly to investing, out of the decisions). This week I'll cover the 8 numbers he uses.
So lets start, shall we?
1. Positive Earnings Revisions
Navellier points out that analysts (the folks responsible for guessing what future company earnings will be) lose their jobs if they call company earnings results too high (because when companies miss earnings, the stock price drops like a stone). If they call the number too low, not much happens. So it makes sense that analysts will err on the side of caution and call it low. That means that there has to be very, very, very good news for analysts to move those estimates higher.
2. Positive Earnings Surprises
Another great growth sign is when a company's actual results are higher than analyst estimates. When a company's results exceeds estimates, there is an immediate bump up in the stock price. Navellier says that positive earnings surprises tend to repeat "as analysts are slow to raise estimates to reflect the new reality." What does that mean? The stock price will go up, up, up.
Note: Of course, I'm simply skimming the chapters. If you wish more information on Navellier's thinking, definitely check out The Little Book That Makes You Rich (I'm enjoying it).