August, historically, has been one of the worst months of the year for the major bourses. Hence, investors should look for stocks with superb earnings acceleration. After all, studies have shown that most successful stocks have seen an acceleration in earnings before an uptick in the stock price.

Earnings acceleration is the incremental growth in a company’s earnings per share (EPS). In other words, if the rate of a company’s quarter-over-quarter earnings growth increases within a stipulated frame of time, it can be called earnings acceleration.

In the case of earnings growth, you pay for something that is already reflected in the stock price. But earnings acceleration helps spot stocks that haven’t yet caught the attention of investors and, once secured, will invariably lead to a rally in the share price. This is because earnings acceleration considers both the direction and magnitude of growth rates.

An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times drag prices down.

Screening Parameters

Let’s look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed the previous periods’ growth rates. The projected quarter-over-quarter percentage EPS growth rates are also expected to be higher than the previous periods’ growth rates.

EPS % Projected Growth (Q1)/(Q0) greater than EPS % Growth (Q0)/(Q-1): The projected growth rate for the current quarter (Q1) over the completed quarter (Q0) has to be greater than the growth rate from the completed quarter (Q0) over one quarter ago (Q-1).

EPS % Growth (Q0)/(Q-1) greater than EPS % Growth (Q-1)/(Q-2): The growth rate for the completed quarter (Q0) over one quarter ago (Q-1) has to be greater than the growth rate from one quarter ago (Q-1) over two quarters ago (Q-2).

EPS % Growth (Q-1)/(Q-2) greater than EPS % Growth (Q-2)/(Q-3): The growth rate from one quarter ago (Q-1) over two quarters ago (Q-2) has to be greater than the growth rate from two quarters ago (Q-2) over three quarters ago (Q-3).

In addition to this, we have added the following parameters:

Current Price greater than or equal to $5: This screens out low-priced stocks.

Average 20-day volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.

The above criteria narrowed down the universe of around 7,735 stocks to only three. Here are the stocks:

Carnival CCL operates as a cruise and vacation company. Carnival currently has a Zacks Rank #2 (Buy). CCL’s expected earnings growth rate for the current year is 97%.

Norwegian Cruise Line NCLH is a leading cruise line operator. Norwegian Cruise Line currently has a Zacks Rank #2. NCLH’s expected earnings growth rate for the current year is 117.7%.

Gentherm THRM is a developer and marketer of innovative thermal management technologies. Gentherm currently has a Zacks Rank #2. THRM’s expected earnings growth rate for the current year is 39%.

Carnival Corporation (CCL): Free Stock Analysis Report

Gentherm Inc (THRM): Free Stock Analysis Report

Norwegian Cruise Line Holdings Ltd. (NCLH): Free Stock Analysis Report

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