Guru Martin Zweig: Earnings-Focused Stock Hunter

Since the age of 13, Martin Zweig was determined to become a successful investor. He succeeded in a big way, and his stock recommendation newsletter (the Zweig Forecast) was ranked number one by Hulbert Financial Digest for 15 years. In a profile on Zweig for Forbes, Validea CEO John Reese describes this guru’s complex, largely earnings-based investment strategy.

Zweig believed there were two different approaches to choosing stocks: the “shotgun” approach and the “rifle” approach. The first of the two (his preferred method) involves compiling publicly available data on a large number of stocks and then screening by various criteria. The second requires extensive analysis on a small number of stocks, drilling down on all aspects of a company’s earnings profile and debt story. Zweig’s shotgun approach represents one of Validea’s more intensive screens, encompassing 13 criteria (10 of which are earnings based).

I’ve identified the following stocks that score well using our Zweig-inspired stock screen:

  • Drew Industries (DW) supplies an array of components for the manufacture of recreational vehicles and manufactured homes. Persistent earnings growth (21.31% this year) is supported by revenue growth of 18.38%, a plus under our Zweig strategy.
  • Ulta Salon, Cosmetics and Fragrance (ULTA) is a beauty retailer. Recent quarterly earnings growth (39.4%) surpassed the historical rate (27.92%) and the company’s debt-free balance sheet gets high marks.
  • Insteel Industries (IIIN) is a manufacturer of steel wire reinforcing products. The company’s price-earnings ratio of 17.67 compares well to the market average of 15. Quarter-over-quarter earnings growth has more than doubled, and the company boasts a debt-free balance sheet.
  • Hain Celestial Group (HAIN) manufacturers and markets organic and natural products. Strong revenue growth (40.48%) supports earnings growth (34.62%), and the recent doubling of quarter-over-quarter earnings is a plus.