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The best mornings are the ones where you wake up to a positive earnings surprise and big profits. The worst mornings are the ones where you wake up to an earnings miss and heavy losses. The reopening of the country and the world continues in the wake of the COVID-19 pandemic. Restaurants are open, airplanes are full, and hotel lobbies are buzzing again. Although, it is not all sunshine and lollipops. Labor shortages are hitting industries which were already crippled from the shutdowns. Now, the specter of inflation is entering the scene, along with the ever-present threat of the Delta variant. With so much riding on this quarter's round of reports, nothing can move a stock faster, up or down, than an earnings announcement. This is especially true today with the stock market up at all-time highs. Industries which have thrived during the shift towards a "Stay-Home" economy will have to stand up and deliver huge reports to keep the momentum. Those in downtrodden industries will need to prove themselves or face another wave of selling. Early indications are that inflated commodity prices are going to be great for some industries and terrible for others. Any stocks unfortunate enough to hiccup this earnings season, and not meet the lofty expectations of investors will be severely punished. This will lead to devastating losses for those unlucky shareholders. However, the owners of stocks with positive surprises will be richly rewarded. So now is the perfect time to align your portfolio to profit in the month ahead. You should already know Zacks Investment Research specializes in the coverage of corporate earnings. And more importantly, how to profit from this information. So, today I'm going to share with you 3 proven secrets to profit from earnings announcements. (Hint: Be sure to read to the end as the 3rd strategy is by far the most profitable) Secret 1: Target 4 Leading Indicators of Positive Earnings Surprises The most obvious strategy is the reason we are all here. The 4 leading indicators I refer to are the 4 factors of the Zacks Rank. Before you skip this section, let me share some information with you that you may not have known. In the mid-1970s Len Zacks took his mathematical skills to Wall Street where his job was to discover stock picking strategies that would beat the market. He had a simple theory that was the precursor to what became the Zacks Rank. Len focused his research on finding stocks that were more likely to have a positive earnings surprise and jump on the news. The journey led him to what we know as the 4 factors of the Zacks Rank. Each individually increases the odds of owning stocks that will enjoy a positive earnings surprise. However, when you combine them together inside the Zacks Rank it becomes an almost obscene advantage for investors. Continued . . . | ||||||||||||
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| Secret 2: Stop the Bleeding This second secret is simple, yet hard for most investors to do. So, I'm going to repeat it again and again...until I wear out the words! Sell All Companies with a Negative Earnings Surprise! Yes. Immediately. Do Not Pass Go. Do Not Collect $200. Sell! Even after it falls at the open. Even if it is for a substantial loss. Why? Better to take a 5-10% loss in the short run than a 20 to 40% loss in the long run. Keep in mind how earnings estimates are created. Both company executives and brokerage analysts do their best to create conservative estimates that the company should easily beat. It's all about lowering the bar. So when a company falls short of those watered-down estimates it points to one of two serious problems:
Either reason is enough cause to abandon the stock immediately and move on to greener pastures. Secret 3: Harness Real "Earnings Whispers" Consider the following chain of logic:
Add it all up and no analyst would increase estimates close to the date of the earnings report unless there was a DARN GOOD REASON. Focusing on those estimates closest to the earnings announcement is where we've found the "whisper that becomes a scream." ...a clear indication from the analyst community of stocks more likely to beat earnings by a wide margin. And most importantly, rise on that news. The Easy Way to Apply These Secrets The problem is that in each earnings season, including now, there are hundreds of stocks that are likely to achieve positive surprises. That is why our Zacks research team created a special strategy that uses additional filters to narrow down the lists. It detects rare companies that are most likely to both beat earnings and jump in price. This drives the portfolio I am managing called the Surprise Trader. I can't share all the details of its formula with you, but it relies on two under-used criteria coming from the brokerage analyst community. These two factors are then layered on top of other time-tested elements such as the Zacks Rank and Zacks Industry Rank to find only the best stocks in the best industries. This is a significant research breakthrough, and it predicts positive earnings surprises before they are reported, with documented 80.25% accuracy. It offers you the chance to beat Wall Street to the punch by getting in early on price pops that can follow positive surprises. In fact, our Surprise Trader portfolio recently closed gains of +70.9%, +62.6%, +55.9%, and even +114.4% in as little as 5 days.¹ Would you like to pursue quick, substantial gains this earnings season? Are you ready to move on the flurry of positive surprises we're turning up? Then I invite you to join us. As a bonus, you may download our "Early Warning Alert" report free. It reveals Stocks to Sell Before They Report Earnings in the Coming Week. Our strategy works both ways, and you can use this report to avoid companies that spotlight what could be the worst negative surprises from July 19-30. But don't delay. We can't let too many share our "surprise" recommendations so they are generally closed to the public. Today the portfolio is briefly open again, but your chance to gain access ends on midnight Sunday, July 18. Look into the Zacks Surprise Trader now » Good Investing,
Dave Bartosiak is Zacks' resident earnings surprise expert. He selects stocks and delivers commentary for our Surprise Trader portfolio. | ||||||||||||
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| ¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". https://www.zacks.com/terms_of_service Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or US investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through May 3, 2021. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank #1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance_disclosure for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
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