Zacks.com featured expert Kevin Matras highlights: Core Labs, Gardner Denver and Precision Castparts.

CHICAGO -- Kevin Matras shows how you can beat the market with his Upgrades and Revisions2 strategy. Stocks in this week's article are Core Laboratories (NYSE: CLB), Gardner Denver, Inc. (NYSE: GDI) and Precision Castparts Corporation (NYSE: PCP). Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=109

Screen of the Week written by Kevin Matras of Zacks Investment Research:

Upgrades and Revisions2 is one of my favorite strategies. As the name suggests, it focuses primarily on stocks with Upward Earnings Estimate Revisions and Rating Upgrades. Studies have shown that "earnings estimate revisions are the most powerful force driving stock prices." And stocks with rising EPS revisions will generally experience broker upgrades as well.

On average, it generates approximately 8-10 stocks per run, has an excellent win ratio and has shown consistently impressive returns year after year.

Parameters

The first item in this screen is to find only those stocks that are a Zacks #1 Rank:

* Zacks Rank equal to 1 (Strong Buys)

(Only stocks with a Strong Buy rating from Zacks are allowed. With the Zacks Rank proving itself to be one of the best (if not the best) rating system out there, this is a great way to start things off.

Next is the % Change in Current Quarter Earnings Estimates over the last four weeks, and I want that to be greater than 0:

* % Change Q1 Estimates over the last 4 weeks greater than or equal to 0

(Earnings estimates with fresh upward revisions (or at the very least, no downward revisions, is one of the most important filters and one of the reasons why this screen is called Upgrades and Revisions.)

Next is the % of Average Broker Rating Change over the last four weeks. Again, greater than 0:

* % Rating Change over 4 weeks greater than or equal to 0

(Since analysts have such a big upside bias, we're excluding anything that's been even slightly downgraded. Another big item and where the Upgrades in the name Upgrades and Revisions came from.)

Next is:

* P/E using 12 mo. Forward EPS Estimates less than or equal to 65

(That's right, 65 -- growth stocks are welcome. Our studies have shown that stocks with P/E ratios of up to 65 outperform those with P/E's of over 65. So to increase our probabilities of success, we've drawn the line at 65.)

* % Change Actual EPS (Q0)/(Q-1) greater than or equal to 0

(Positive EPS growth this quarter over last and ...

* % Change Actual EPS (Q-1)/(Q-2) greater than or equal to 0

(Positive EPS growth last quarter over the one before that. In other words, two quarters of positive EPS growth.)

Then it's on to the annual growth rate:

* % Change Actual EPS (F0)/(F-1) greater than or equal to 0

(I want a positive EPS growth this year over last.)

And then the longer term historical growth rate:

* 5 Year Historical EPS Growth greater than or equal to 17

(Yes, 17 - the average stock in the Zacks universe has a five-year historical growth rate of approximately 15%. And this screen finds only those stocks with a growth rate above that threshold.)

Next is:

* Last EPS Surprise greater than or equal to 0

(No negative surprises allowed. And since companies that have recently surprised in the past have a tendency to surprise again in the future, this is move.)

* Price/Sales ratio less than or equal to 4

(Actually, we've had great success with the Price/Sales ratio being between two, three and four. In general, a lower Price/Sales ratio is better. But I selected four because it didn't narrow down the stock selection too much.)

And finally...

* All the stocks had to be trading at a minimum of $3 or more.

(Although, with all the items above, the typical pick has an average stock price of usually $30 and higher.)

The Results

For this demonstration, I ran a series of tests over each of the last six years (2001 through 2006). I rebalanced the portfolio every four weeks and started each run on different start dates so each test would be rebalanced over a different set of four-week periods. This was done to eliminate coincidence and to verify robustness. And the returns are all gross returns, excluding any brokerage commissions and fees.

Returns

In 2001, the average annualized gross returns were 55.8%. In 2002 it was 42.1%. In the cake-walk of 2003, the returns came in at a whopping 108.5%. In 2004, its average annualized return came in at 49.3%. 2005 was 16.5%. And in 2006, the average returns were 22.7%.

Here are three stocks from this week's list (5/7/07):

CLB Core Laboratories

GDI Gardner Denver, Inc.

PCP Precision Castparts Corp.

Get the rest of the stocks on this list and start using this winning strategy in your own portfolio. You can do it. Sign up now for your free trial to the Research Wizard and start making better decisions today. http://at.zacks.com/?id=111

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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