With fourth-quarter earnings winding down, I’ve been running a screen with an interesting concept: to find companies that have just recently shown their first quarterly profit within the last year. The idea is to find companies that have not shown a profit for at least the previous 4 quarters but have just recently produced their first profit. Some of these companies will be relatively new and this recent profit may be the only profit in the company’s history - so far. Others may have a long history of profitability, but have seen a contraction over the last year as the recession raged on - but have finally returned to profitability. The reason I like this concept is because if the trend has been one of improvement, there’s a good chance that trend will continue. This is true whether you’ve been profitable or are just getting profitable.

But some (like myself for example) dislike buying companies that cannot show a profit. And there are many others who won’t even consider a stock unless it’s making money. Losing less than the previous quarter is indeed an improvement. And in that respect, by definition, it is growth, i.e. they’re growing less unprofitable. And it’s even better is if the losses are less and less in each sequential quarter.

But there’s something entirely different about growth AND being profitable. And those are the stocks that will likely see the best new demand from new investors; people who are now, all of a sudden, willing to take notice of and pay attention to the stock.

And that’s what we’re screening for today:

* EPS for the previous 4 Quarters less than or equal to 0
(This means in each of the previous 4 quarters (except the most recently-reported quarter) the company has reported earnings of less than or equal to zero, i.e. no profit.)

* EPS for the recently reported quarter greater than 0
(This time, the company reported earnings greater than zero, meaning they finally showed a profit.)

* Current Price greater than or equal to 5
(I prefer to only look at companies over $5. But if you drop this item from the screen, it’ll currently produce three times as many stocks coming thru the screen.)

The screen is pretty simple yet pretty powerful.

Here are 5 stocks that made it thru this week’s screen (for 2/16/10):

CROX - Crocs, Inc.

(they report on 2/25/10)

CY - Cypress Semiconductor Corp.

(they just reported a +140% surprise on 1/28/10)

DHI - D.R. Horton, Inc.

(they just reported a +175% surprise on 2/2/10)

GAIA - Gaiam Inc.

(they report on 3/9/10)

KELYA - Kelly Services, Inc.

(they just reported a +125% surprise on 2/5/10)

Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It’s easy to do. And it could help you find your next ‘best’ stock.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

    Posted in Stock market from Investor on 18. Feb. 2010