5 Winning Stocks for 2010

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.

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.

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.

Intuitive Surgical has revolutionized the operating table with its surgically savvy robotic arms. Even as hospitals are scaling back expenditures, investing in Intuitive Surgical makes too much sense as it reduces surgeon fatigue and helps improve recovery times.

Chipotle's "food with integrity" is resonating with consumers who expect more out of food than whatever Taco Bell is wrapping up for $0.89 these days. The chain has posted positive comps through the recession, and it expects to remain positive in the near term.

Hasbro has thrived, assisted by the brand-building awareness of having its Transformers and G.I. Joe lines turned into theatrical productions. Playthings respond early to an economic recovery. Larger rival Mattel (NYSE: MAT) has toy recalls to overcome and lacks the cinematic one-two punch of Hasbro, yet it too has managed to blow past Wall Street's profit targets in each of the past two quarters.

When it comes to high-end fitness apparel for women, Canada's lululemon has its finger on the pulse of what trendy and well-to-do ladies are wearing to yoga class and active errand running. Net revenue and operating profits soared 55% and 158% respectively in its latest quarter.

Giant Interactive is one of the lesser known players in China's booming online gaming market. This doesn't mean that besting the pros is a slam dunk. Shanda Games (Nasdaq: GAME) went public late last year and simply met Wall Street expectations in its first complete quarter as a public company.

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? I like all five of these stocks, because it's hard to bet against the analyst-thumping trend.

It's not a perfect science. I've seen shares of Chipotle 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. Chipotle shares have more than tripled since hitting rock bottom less than two years ago. lululemon's run has been even more dramatic. The yoga retailer's stock has popped eightfold since bottoming out 14 months ago. Namaste, indeed.

As an analyst for the Motley Fool Rule Breakers newsletter, I am part of the team that has recommended shares of Intuitive Surgical and Chipotle to the growth stock service's subscribers. We didn't nail the bottom on any of them, but we got our subscribers 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 investing service. Intuitive Surgical and Chipotle are active recommendations. 

Longtime Fool contributor Rick Munarriz believes in quarterly checkups. He does not own shares in any of the stocks in this story. Chipotle Mexican Grill is a Motley Fool Hidden Gems recommendation.Chipotle and Intuitive Surgical are Rule Breakers recommendations. Hasbro is a Stock Advisor selection. The Fool owns shares of Chipotle Mexican Grill and Hasbro. The Fool has a disclosure policy.