Which Drug Stocks have the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

Stocks with improving earnings metrics are worthy of your extra attention. Click here to discover our CHEAT SHEET stock picks now!

Here’s your Cheat Sheet to how the top 5 drug stocks rank via earnings trends:

Forest Laboratories Inc. (NYSE:FRX): Current Price $36.77

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 3,836 3,923 4,193 4,420 4,586
Diluted EPS ($) 3.06 2.52 2.25 3.59 3.57

Forest Labs reported improving sales every year from 2008 through 2012. EPS, however, has remained unchanged over the last two years.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 1,209 1,056 821.13 760.64 722.69
Diluted EPS ($) 1.04 0.72 0.21 0.08 -0.58

Forest is going downhill on its quarterly numbers. Both revenue and EPS have plunged and the latter was negative in the latest quarter. That’s a sign to strictly avoid this stock…