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Earnings Upgrade Momentum Screen 200 Qualifying

Earnings Forecast Upgrades is a momentum strategy set out by US academics Phillip McKnight and Steven Todd in research that examined how analyst forecasts affect share prices. It focuses on finding momentum stocks by highlighting those that are receiving the highest levels of upgraded earnings forecasts from analysts. It looks at both the number of analysts that have raised their forecasts on a share over the past month, and the overall percentage earnings-per-share increase among the consensus of analysts. McKnight and Todd claimed: "Stocks with the greatest number of upwards revisions in earnings, net of downward revisions, earn significantly higher returns than otherwise similar stocks." The researchers examined a portfolio of European shares and found that the 20% with the highest net upward revisions outperformed the lowest 20% by over 16% a year. Earnings upgrades are one way of finding stocks with 'earnings momentum'; those that have received upward earnings revisions are likely to do so again in the future.

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This is an independent study based upon the methods of...
Picture of Phillipp McKnight

Phillipp McKnight

American born financial theorist and university professor.

Analyst Forecasts and the Cross Section of European Stock Returns

by Philipp McKnight and Steven Todd

Research on European stock by Todd & McKnightwork found that the positive returns realized on a earnings upgrade portfolio were large and persistent, whereas the sell portfolio generated a near zero return, i.e. the bad news was quickly priced in whereas the good news diffused slowly. This may be because conflicts of interest encourage analysts to report overly optimistic earnings, and investors, aware of these biases, respond by being cynical and adopting a “wait-and-see” approach when it comes to good news.

This screen uses the following criteria:

  • % 1m EPS Upgrade FY2 > 5
  • # 1m Upgrades > 1
  • # 1m Upgrades > 1 * # Downgrades (1m)
  • # Brokers > 3

Results are sorted by:

  • % 1m EPS Upgrade FY2 in descending order


And limited to the first 200 Results


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Performance Tracking


Returns FTSE 100
1 week -3.5% -5.5% -0.7% 2.0% -6.8% -2.9% -1.8% -1.0%
1 month -4.4% -5.1% 0.8% 7.2% -5.7% -5.3% 3.3% -0.3%
3 months -9.3% -9.8% 4.3% 7.7% -3.7% -10.0% 10.3% -0.9%
6 months 3.5% -1.1% 25.3% -9.2% 12.5% 4.9% 9.3% 5.9%
1 year 9.0% 7.0% 31.8% -0.2% 22.7% 5.3% 22.7% 3.9%
2 years 37.1% 49.0% 26.6% 60.8% 13.3% 39.8% 21.9% 10.5%
Annualised 15.3% 14.9% 6.4% 29.1% 31.1% 24.4% 33.3%
 
Risks
Max Drawdown -33.3% -21.8% -45.0% -30.1% -18.0% -15.9% -24.5%
Avg Holdings 12.9 23.9 25 3.3 21.4 25 12
Diversification Moderate Good Good Low Good Good Moderate