Did you see which stocks were most actively traded last week?

On the Nasdaq, the five stocks with the most trading volume were Cisco Systems (Nasdaq: CSCO), Intel (Nasdaq: INTC), Sun Microsystems (Nasdaq: SUNW), Oracle (Nasdaq: ORCL), and Microsoft (Nasdaq: MSFT). On the New York Stock Exchange, most actives included Pfizer (NYSE: PFE), AOL Time Warner (NYSE: AOL), and General Electric (NYSE: GE).

These companies are among the largest in the world and the most well-known. Who cares if they were the most actively traded?

Well, the point is that they are among the most important companies in the world economy, too. And in the cases of Microsoft, AOL, and Cisco, they began to appear on the most active lists regularly, and then consistently, way back in the early 1990s. Had you spotted them on the lists then, and invested, you would have a very low cost basis.

Of course, back then Cisco's main competitor, Bay Networks, was also a most actively traded stock, and AOL was trailing CompuServe, so these two were not obvious winners-to-be. However, today's lesson still holds value: Watching the most actively traded stock lists can serve as a good first screen when you're looking for emerging leaders.

There can be a correlation, over many months and years, between high volume and quality. The best companies hold high investor interest year after year as they grow in value.

Watch, wait and learn...
I've been watching the "most active stock" tables for several years. Every Sunday, the The Washington Post lists the 15 most active stocks on each exchange for the past week. Lately, some new names have been appearing on the list, including Juniper Networks (Nasdaq: JNPR) and Siebel Systems (Nasdaq: SEBL). Avid investors know these companies (Juniper had a strong first quarter), but most investors do not. The fact that these companies are beginning to appear on the most-active list indicates their growing relevance on Wall Street, and so in the world.

Obviously, you must be patient and cautious. Most weeks, a few new companies will burst on the list due to news. This doesn't count. Increasing relevance for a company is implied only by becoming a most actively traded stock week after week, month after month, even without news. Therefore, it takes several months to ascertain that a company truly is edging onto the coveted "most active" list.

Even when a company makes the list for months, however, it may not be there to stay. Yahoo! (Nasdaq: YHOO) began to make the active list soon before Amazon.com (Nasdaq: AMZN). Now Amazon's trading level, when measured by dollar volume, has dwindled to an embarrassingly low level, and Yahoo! is only occasionally clinging to the bottom rungs of the most active list. This indicates that investors now view these companies as being less important than previously thought.

Clearly, watching the most active list is only a first step in seeking emerging leaders, but it can be a good and easy first step. I suggest bypassing the daily most actives -- they hold too many aberrations -- and only looking at the most active stocks over a one-week, or even a one-month, period. (Do you know a good source for this? Share it.) Begin to track the lists, and when a new company begins to consistently appear, learn more about it. See if its relevance in the world is growing enough to merit your investment interest. Who knows -- one day, you might have a young Cisco on your hands.

AOL and eBay earnings
AOL Time Warner reported first-quarter earnings that surpassed expectations. Before pesky one-time charges and a $620 million write-down of company investments, the newly combined giant earned $0.23 per share, up 21% from last year, and topping the $0.20-per-share estimate. Sales rose 9% to $9.1 billion. That lame EBITDA number (earnings before interest, taxes, depreciation and amortization) that management insists on using rose 20% to $2.1 billion.

The company stands behind its 2001 guidance of $40 billion in sales and $11 billion in EBITDA. For the year, analysts expect $1.18 in earnings per share. In my opinion, this debt-heavy giant needs to start cleaning up its finances sooner rather than later. I view Microsoft as AOL Time Warner's best competitor, and Microsoft has impeccable financials, equating to increased business options and flexibility. For today, we're just glad that AOL had a good quarter in a tough environment.

eBay (Nasdaq: EBAY) will announce earnings on Thursday after the stock market closes. Its first quarter is usually strong because it follows the holidays. Sales of $150 million are expected, and earnings per share of at least $0.08.

Fool on!

P.S. I might suggest to the Breaker Team that we modify our Relative Strength criterion with a "consistently rising trading volume" criterion. I believe that this may prove more meaningful in measuring a company's growing importance.

Jeff Fischer owns some actively traded stocks, including AOL, Pfizer, and Intel, as well as eBay. He also owns very inactively traded baseball cards dating back to 1977. The Fool has a full disclosure policy.