In a new report based on 20 years of stock research, Turner Investments finds that earnings do, in fact, drive stock performance.
The report, “Yes, Earning Do Drive Stock Prices,” was co-authored by Quantitative Research Manager Freda Song Drechsler and Chairman and CIO Bob Turner.
The report found that 47% of stocks with earnings in the highest quintile in a given quarter remained in the highest quarter the following quarter, and 37% remained in that quarter in the quarter after that.
“Trends in earnings growth do persist, which can lead to higher stock prices,” the report said.
For the long term, in the 20 years through November 2010, stocks with the strongest trend in earnings growth delivered returns more than eight times the stocks with the weakest earnings growth. Those high-performers returned an annualized 11.5%, compared to 1.5% for the weakest. By comparison, the S&P 500 Index rose by an average of 6.3% in that time.
Turner issued the report since it is a growth-oriented fund shop.