Based on a recent request, I created a MarketSmith screen to filter based on criteria that may be applicable to long term leaders.
Here’s my thought process on each of the criteria:
- Long term leader should have stable earnings growth. When looking at Earnings Stability, the lower the better. This value indicates the predictability of a companies earnings.
- The EPS Growth Rate can be thought of as the angle of the earnings stability. If you’d like more information, Understanding Earnings Stability & EPS Growth Rate may be of interest.
- Long term leaders tend to have high a Composite Rating and EPS Rating.
- $50M average dollar volume ensures there is adequate liquidity.
- The current year EPS estimate indicates a continuation of earnings growth.
Here are the 34 stocks returned by the screen as of 8/30/2020.
Screening is an Art
The above screen may be a good starting point, however, it doesn’t mean it’ll capture all long term leaders. For example, the screen specifies an EPS Estimate for the current year of > 15% and an EPS Rating > 90.
I consider MasterCard (MA) to be a long term leader given its consistent and steady growth over many years. However, as noted on the image that follows, MA does not currently meet either of those criteria.
Be flexible. Add/remove/adjust any of the parameters based on your research into what you think makes for a long term leader.
For Long Term Leaders, Study the Monthly Charts
With long term leaders it’s important to view the monthly chart. Look for a long, consistent, upward sloping trend in price and a matching RS Line. Dominos Pizza (DPZ) is a good example: