To be a top notch investor, you need to know a few “tricks of the trade.”

In a bull market, the majority of stocks tend to move higher. However, to do well, you need to zero in on the outstanding stocks. One trick you can use is to focus on leading stocks that will be showing an “acceleration in quarterly earnings growth.”

This gem of a trick was first highlighted by William O’Neil, publisher of Investor’s Business Daily. He discovered it when his research firm did an exhaustive study on some of the key characteristics of top-performing stocks.

The basic idea is this: You want to find companies whose quarterly earnings growth will not only rise significantly but at an accelerating rate. For instance, you want to find a company whose earnings growth will be up, say 50 percent one quarter, 100 percent the next and 130 percent the next.

You might say, “Wow! That’s tough to find. There are not many companies like that.” Precisely right! What you are looking for are those “special situations.”  They are there; you just need to dig by doing your research.

Of course, earnings are not the only criterion. It is a given that the stock’s price should be in an up trend and be performing well. The future “powerful earnings growth” should drive the stock even higher. Also, these kinds of stock plays will work very well during a bull market. That is because institutions looking for growth stocks will be more inclined to put their money to work in a bull market.

One issue fitting the “quarterly accelerating earnings growth profile” is Kadant Inc. (KAI) trading at $25.73. (as of mid-October). The stock rose from 16 last year to 25. Now, it is in a nine-week flat base and poised to break out to the upside.

Kadant makes paper-recycling equipment that turns wastepaper into white and brown grades of recycled paper. The firm, with annual revenues of $244 million, is a 2001 spin off from Thermo Electron.

In Early August, Kadant reported a 78 percent increase in net from operations for the second quarter to 41 cents a share from 23 cents a year ago. Revenues increased 38 percent.

Kadant is doing well because of strong demand for its fluid-handling equipment in North America and Europe. The equipment is said to help reduce energy costs. The company is also seeing strong demand for its products in China.

What makes Kadant a potential good performer is that earnings for the next two quarters will show a significant acceleration in growth. Profits for the third quarter should surge 103 percent and in the fourth quarter soar 329 percent. That is impressive! For the year, Kadant’s net should leap 82 percent to $1.27 a share from 70 cents last year.

Another company set to show accelerating earnings growth is Terex Corp. (TEX), a maker of construction equipment, such as cranes, excavators and off-highway trucks. It has annual sales of $6.4 billion.

Terex’s stock is trading at $52 and is just starting to move North from a six-month basing pattern that was formed after the stock climbed from 20 last year to 50 earlier this year.

Terex’s quarterly earnings will show an acceleration in growth. Net for the soon-to-be reported third quarter should climb 72 percent to 94 cents a share from 55 cents a year ago.

For the fourth quarter, profit growth should accelerate to 155 percent. Net is projected by analysts to jump to 87 cents a share from 34 cents a year ago. That should bring profits for the year to $3.80 a share, a hefty 106 percent increase over the $1.85 a share in 2006. 

The company said it is seeing dramatic improvement in most of its businesses. It is also experiencing a significant pickup in business outside the U.S. Terex operates in Europe, Asia and Australia.

A good way for eSignal investors to spot these strong earnings-growth stocks is to check the eSignal Market Scanner for stocks making new highs. Then, check via Zacks or other services for their earnings outlook going out the next two quarters and the next two years.
 
An ideal accelerating earnings-growth play would be a company that has an exciting new product. In a bull market, these stocks can, often times, make sensational moves.