Page 287 - How to Make Money in Stocks Trilogy

A = Annual Earnings Increases: Look for Big Growth 165

• Xerox, which was growing at a 32% annual rate before its shares soared
700% from March 1963 to June 1966
• Wal-Mart Stores, which consistently created an annual growth rate of
43% before rocketing 11,200% from 1977 to 1990
• Cisco Systems, whose earnings were exploding at a 257% rate in October
1990, and Microsoft, which was growing at a 99% clip in October 1986,
before their enormous advances
• Priceline.com, which from 2004 to 2006 more than doubled its earnings
from 96 cents a share to $2.03, before it tripled in price in the next five
quarters
• Google, which had already expanded its earnings from 55 cents a share in
2002 to $2.51 a share in 2004 before its stock climbed from $200 to $700
by 2007
Keep in mind that an annual growth record doesn’t necessarily make a
company a solid growth stock. In fact, some so-called growth stocks report
substantially slower growth than they did in earlier market periods. Many
growth leaders in one cycle do not repeat in the next cycle.
The stock of a company that has an outstanding three-year growth record
of 30% but whose earnings growth has slowed to 10% or 15% in the last sev-
eral quarters acts like a fully mature growth stock. Older and larger organiza-
tions are usually characterized by slower growth, and many of them should be
avoided. America is continually led and driven by new innovative entrepre-
neurial companies. They, and not our government, create our new industries.

Insist on Both Annual and Current Quarterly
Earnings Being Excellent
A standout stock needs both a sound growth record in recent years and a
strong current earnings record in the last several quarters. It’s the powerful
combination of these two critical factors, rather than one or the other, that
creates a super stock, or at least one that has a higher chance for true success.
The fastest way to find a company with strong and accelerating current
earnings and solid three-year growth is by checking the proprietary Earn-
ings per Share (EPS) Rating provided for every stock listed in Investor’s
Business Daily’s research stock tables.
The EPS Rating measures a company’s two most recent quarters of
earnings growth against the same quarters the year before and examines
its growth rate over the last three years. The results are then compared
with those of all other publicly traded companies and rated on a scale
from 1 to 99, with 99 being best. An EPS Rating of 99 means a company