How to Find Big Winners This Earnings Season
Zacks Investment Research | Apr 14, 2021 12:24AM ET
It is earnings season again!
Earnings season always brings the potential for huge moves in stocks. This quarter, as the new administration begins to enact policies, investors will have to adapt to the unknown. There has been a rotation back into stocks that benefit from COVID-related reopening, but how long will that trade last? Could money rotate back into tech and growth this quarter?
Lots of stocks have come well off their lows, but earnings will decide whether these moves continue or not. Energy stocks and financials have led the way so far this year while consumer staples and healthcare have lagged. That means that the dartboard approach is not going to work for you this earnings season. You are going to have to choose your investments wisely.
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 (NYSE:BLL) 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 has predicted positive earnings surprises with exactly 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 analysts’ estimates for the quarter, even if that estimate hasn't been revised in three months.
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