Ah! The follow-through!

It is one of the most important aspects of form -- when it comes to sports -- whether it is pitching a baseball, shooting a basketball, hitting a golf ball or throwing a bowling ball. If the follow-through is smooth and well delivered, there is an excellent chance the results will be too.

The same goes for the stock market, especially if you are a growth stock investor.

 There are two key aspects to investing in stocks: (1) stock selection and (2) timing.

Stock selection deals with picking the stock of a company in a high-growth industry with strong earnings, a good product and solid management. The key, of course, is for the company to have a jump on the competition.

When looking for the follow-through in this situation, you should focus on a firm’s earnings. If the company can produce strong profits and even surpass Wall Street estimates, it most likely will do well, based on fundamentals.
 
Cognizant Technology Solutions Inc. (CTSH)

Take the case of Cognizant Technology Solutions Inc. (CTSH), the computer and information services firm that does a lot of its work from India. In early August, the company reported a 44 percent increase in second-quarter profits to 39 cents a share from 27 cents a year ago. That easily topped the consensus Wall Street estimate of 33 cents a share.

The stock responded to the news by “gapping higher” to close at $67.23 on August 2 and, in the following session, broke out of a three-month base to make a new high and close at $67.16. (see chart).

The key to the “fundamentals follow-through” was that Wall Street raised its forecast of CTSH’s yearly earnings to a gain of 40 percent, with net projected at $1.46 a share, up from $1.05 a year ago. The prior forecast was for a 32 percent rise in net to $1.39 a share.

After the strong move on August 2 and 3, CTSH’s stock pulled back and then trended sideways for a few weeks. Then, the “key technical follow-through” kicked in when the stock broke out of a well-formed, flat base on September 13 by closing at $73.29.

So, the stock of CTSH is in gear to the upside, having followed through with both its earnings and the technical action of its stock. To add a little spice to the situation, the largest fund holder in CTSH is the Fidelity Contrafund, with a 2.3 percent stake. It has a Morningstar 5-star rating, the highest possible.

Gilat Satellite Networks Ltd. (GILT)

A low-priced stock showing good follow-through action is Gilat Satellite Networks Ltd. (GILT), an Israeli firm providing satellite communications technology. On August 14, Gilat came in with net income for the second quarter of 12 cents a share compared with a loss of 5 cents a share a year ago.

The 12 cents was an upside surprise. Wall Street was expecting only 10 cents a share. The stock moved slightly higher on the news but still remained in a base. However, on September 1, GILT broke out from its 14-week base and made a new 52-week high, closing at $8.65. It was basing between $8.50 and $7. 

The next trading session, on September 5, GILT made a “technical follow-through” by closing at $9.35. The stock is acting very well. Wall Street is now forecasting that earnings this year will climb to 48 cents a share from a loss of 17 cents a year ago. Next year, they project Gilat’s net will jump 52 percent to 73 cents a share.

With earnings due to come in for many companies for the third quarter ended September 30, eSignal subscribers should be on the look-out for companies with significant upside earnings surprises. That would be the “fundamentals follow-through.”

Next, watch the price action for those stocks. If it is a bullish response to the earnings (and it may not always be), one can consider entering on the long side. Next, look for a follow-through moving higher in the price of the stock afterwards. That would be the key “technical follow-through.”

If the stock fails to follow, move higher on the initial good earnings news. Then, you should avoid entering the position. If the stock is unable to follow through after you have entered and held the position for awhile, it may be wise to move on.

Remember: The stock market can get tricky. So, you need to follow set guidelines to do well. Keep in mind: The idea of a fundamentals and technical follow-through pattern can be very helpful for putting you on the track to big winning stocks.