The Other Kind Of Momentum

[Pages:4]Third Party Research

February 21, 2015

The Other Kind Of Momentum

eResearch Corporation is pleased to provide an article from Zacks Investment Research, featuring Steve Reitmeister, Executive Vice-President.

In this article, Steve Reitmeister postulates that earnings are what drive stock prices. Hard to argue with that.

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The Other Kind of Momentum

by Steve Reitmeister, Executive Vice-President, Zacks Investment Research

February 21, 2015

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 is 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...

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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 is 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!!!

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Best,

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About Steve Reitmeister

Steve Reitmeister joined Zacks Investment Research in 1999 to become the Managing Editor of the Zacks Elite newsletter. Ten years later, the Hulbert Digest noted the Zacks Elite had the best 10-year stock picking performance 12-1999 to 11-2009 of any newsletter they followed. Since then, he has worn many hats for the firm including his current position as Executive VP in charge of and its subscription services for individual investors.

His main focus is educating people on how to invest more successfully. This is primarily done through the 2 portfolios he currently runs for Zacks customers: Reitmeister Trading Alert and Zacks Confidential. Plus, you will find regular commentary from him on leading investment websites like , Yahoo Finance, SeekingAlpha, CNNMoney, and MarketWatch.

Steve has an MBA from DePaul University and B.A. in Economics from University of Wisconsin.

To contact us by mail: Zacks Investment Research, Inc. 10 S. Riverside Plaza, Suite 1600 Chicago, IL 60606

Disclosure

This free resource is being sent by to our subscribers. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. disclaimer

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable.

All information is current as of the date of herein and is subject to change without notice.

Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, brokerage, market making or asset management activities of any securities. Visit performance for information about the performance numbers displayed in this press release.

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