A stock in motion tends to stay in motion.
I may be paraphrasing Sir Isaac Newton's first law of motion, but I'm sure that the guy could've been a brilliant stock picker in modern times. I mean, come on, lore has it that he was inspired by a falling apple long before Steve Jobs came around.
However, it doesn't get any easier on Wall Street in singling out tomorrow's winners than to keep an eye on the companies that routinely beat analyst expectations. It is the one time that I believe it makes sense to be a rearview mirror investor. Some companies have an uncanny ability to "beat the Street." If you find a stock that has trounced Mr. Market's guesstimates over the past few quarters, the chances are better than fair that it will do so again.
Let's break this theory out by singling out five stocks that have earned more than the pros thought they would in each of the past four quarters. The percentages below are the margin by which these companies topped the consensus quarterly estimate.
|
Company |
Last Quarter |
2 Quarters Ago |
3 Quarters Ago |
4 Quarters Ago |
|---|---|---|---|---|
|
Apple |
80% |
64% |
72% |
95% |
|
Disney |
24% |
12% |
4% |
8% |
|
Green Mountain |
69% |
3% |
29% |
38% |
|
OpenTable |
100% |
40% |
50% |
n/a |
|
Lumber Liquidators |
4% |
17% |
9% |
6% |
Source: Yahoo! Finance.
Winners always prosper
Analysts may have fancy Ivy League MBAs and be whizzes at dissecting financials, but they're not always the best at modeling the future.
Apple is a perfect example. The tech darling isn't an overnight overachiever. It has been humbling the prognosticators for years. How can this happen? The quarterly rite is getting ridiculous.
You would think that Wall Street would get smarter after every drubbing. Analysts would collectively shake their heads, rework their models, and emerge smarter three months later. It just isn't happening with these companies.
Disney has been besting media analysts with surprising consistency since Bob Iger took over as CEO of the family entertainment giant. Sometimes someone new at the helm is all it takes to send old school watchers scrambling. Hewlett-Packard
Green Mountain Coffee's been a burner in each of the past nine quarters, which is roughly around the time that it completed its acquisition of Keurig -- the company behind the K-Cup fueled single-cup java brewers that are taking the country by caffeinated storm. A breakthrough product can get the party started. Just ask Research In Motion
OpenTable went public last year, but the online restaurant reservations specialist has served up nothing but blowout profitability since its IPO. Lumber Liquidators is another company that hasn't had a very long public life, but analysts are walking the plank with the hardwood flooring retailer with every report.
Fig Newton
The market-thumping characteristics of Newton's laws of motion don't end there. His third law poses that every action has an equal reaction going the other way. Isn't that what we're seeing when many of these companies blow the analysts away?
It's not a perfect science. I've seen shares of Apple pull back after a monster quarter, mostly because trend-watching investors have bid up the shares leading up to the quarterly conference call.
However, ignore the hiccups. Take a longer view. Apple shares have soared roughly sixfold over the past five years. Green Mountain Coffee's run has been even more dramatic. The master of brew-ha has is nearly a 20-bagger over that same time.
As an analyst for the Motley Fool Rule Breakers newsletter, I have recommended shares of Green Mountain Coffeee, OpenTable, and Lumber Liquidators to the growth stock service's subscribers. I didn't nail the bottom on any of them, but I got in before some of the more recent eye-opening quarters.
Winners continue to win. There are naturally signs that the trend is turning. Disruptors can be disrupted. Tastes evolve. However, one of the first signs of a faltering buy thesis will come when earnings begin to disappoint.
In other words, it's the most important metric out there in both singling out tomorrow's winners and getting out of the eventual losers early. So keep an eye on those quarterly reports. The companies that consistently surpass expectations are also the same ones that are likely to surpass the market averages.
Thank you, Newton.
Join Rick and other trend-watching analysts through a free 30-day ride on the Rule Breakers newsletter service. Lumber Liquidators, OpenTable, and Green Mountain Coffee Roasters are active recommendations.
Longtime Fool contributor Rick Munarriz believes in quarterly checkups. He does own shares in Disney. Disney is a Motley Fool Inside Value selection. Apple and Disney are Motley Fool Stock Advisor selections. The Fool has a disclosure policy.
