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It's earnings season again! Every earnings season brings the potential for huge moves. This season, it's more important than ever. The Fed is lurking over the market, snuffing out rallies built on the belief that a pivot is coming. Inflationary data and wage growth are dominating the headlines. Investors are becoming increasingly worried about how high interest rates will get, and how long they will remain elevated. High beta stocks, especially those in tech, have had a very rough go of it. Tech stocks were wrecked last year, with some names off over 30%. In fact, the only sector of the market that hung hung onto the green was the energy sector, where stocks were up huge. That sort of juxtaposition lets you know that it is tough out there for folks investing in the wrong areas. In the current stock market environment, investors need to focus on companies with the best fundamentals in order to find the big winners this earnings season. One way to uncover them ahead of time is with our proprietary system called 'Earnings ESP' (Expected Surprise Prediction), which can assist you in uncovering these huge winners before they report earnings. So, if you want to increase your odds of success this earnings season—and who wouldn't, given the market backdrop—then this is one metric you need to know. The Crystal Ball of Earnings Season While it is impossible to know with complete certainty which stocks will deliver positive surprises this earnings season and which ones will disappoint, our proprietary Earnings ESP system determines which stocks have the best chance to surprise with their next earnings announcement. This method predicts earnings surprises with more than 80% accuracy. The Earnings ESP is simply the percentage difference between the 'Most Accurate Estimate' and the 'Zacks Consensus Estimate' for a company's upcoming earnings per share number: Earnings ESP = (Most Accurate Estimate / Zacks Consensus Estimate) -1 The most accurate estimate is the consensus of earnings estimates from analysts over the last 30 days. The Zacks Consensus Estimate, on the other hand, takes the consensus of all analyst estimates for the quarter, even if that estimate hasn't been revised in three months. More . . . | ||||
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| Timeliness Is Critical The underlying concept here is that the most recent analyst estimate revisions are usually the most accurate. Think about it - if an analyst revises his earnings estimate right before an earnings release, he is likely using fresh information that will lead to a more accurate estimate than what analysts predicted two or three months ago. Just like with a weather forecast, predictions are more accurate for tomorrow, than for three months from now. For us, this means the more accurate estimates will usually be the ones that have all the most recent information at their disposal. For example, let's say specialty retailer XYZ Corp reports earnings next week. The Zacks Consensus Estimate for the coming quarter is comprised of eight analysts' estimates and is $0.75. However, three analysts have increased their earnings estimates for XYZ Corp within the last 30 days. Perhaps these analysts have recently visited stores and measured traffic, spoken with suppliers, surveyed customers or incorporated recent economic data into their earnings models. The consensus among these recent estimates is $0.78. That would give XYZ Corp an Earnings ESP of 4% ($0.78/$0.75), meaning this company is likely to deliver a positive earnings surprise. While not all companies that deliver positive earnings surprises will see their stock price rise, studies show that, on average, companies that deliver solid beats see excess returns in their share price for several weeks following the report. This is known as the post-earnings-announcement drift. And finding these stocks before they beat, and then holding them in this 'drift' period, can really boost your returns. Despite several headwinds facing the market, there are bound to be plenty of large positive surprises this quarter. Utilizing Zacks' Earnings ESP system can greatly increase your odds of finding these big winners before they report. Can the Earnings ESP Work for You - Easily? You could start your stock search with this metric. The problem is that in each earnings season, including now, there are hundreds of stocks with positive ESPs. That is why some years ago, our Zacks research team created a special strategy with 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. It predicts positive earnings surprises before they are reported, with documented 81.39% 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, even in 2022, the most bearish year since 2008, Surprise Trader nailed 21 quick double-digit gains. For example, +62.5%, +24.3%, +59.8%, and +19.5% in as little as 10 days.² So if you would like to pursue quick, substantial gains this earnings season, and are ready to move on the flurry of the positive surprises we're turning up, then I invite you to join us. What's the cost for being tipped off to our Positive Earnings Surprise Stocks over the next 30 days? Only $1, and there isn't a cent of additional obligation. Bonus: You are also invited to download our "Early Warning Alert" report free. It reveals Stocks to Sell Before They Report Earnings in the Coming Weeks. Our strategy works both ways, and you can use this report to avoid companies that are likely to report the worst negative surprises from January 17-27. 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 Monday, January 16. Look into the Zacks Surprise Trader and bonus Sell Alert 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 As of 1/9/2023 ² 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 December 5, 2022. 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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