Stunning Predictive Power

As longtime readers will know, I advocate looking at changes to earnings-per-share estimates as a way to sniff out what are probably the best-performing stocks. So did this strategy work in 2012? Let's look at the evidence.

First, we take a look at the 20 top-performing and the 20 bottom-performing stocks in the S&P 500. (We'll limit this analysis to the S&P 500 for simplicity, but the analysis applies to broader universes, as well.) The top 20 stocks had an average return of 93.55%, ranging from 188% at Pulte (PHM) to 66% at Trip Advisor (TRIP). Over the course of the year, the average change in the EPS estimate for 2012 was a 38.56% increase. Of the 20 names, only five had estimates lowered during the year....236 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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