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How to Boost Your Portfolio with Top Retail and Wholesale Stocks Set to Beat Earnings
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Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider Advance Auto Parts?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Advance Auto Parts (AAP - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.97 a share, just 21 days from its upcoming earnings release on February 15, 2022.
By taking the percentage difference between the $1.97 Most Accurate Estimate and the $1.95 Zacks Consensus Estimate, Advance Auto Parts has an Earnings ESP of 1.29%. Investors should also know that AAP is just one of a large group of stocks with positive ESPs. All of these qualifying stocks can be filtered by ESP, Zacks Rank, % Surprise (Last Qtr.), and Reporting date.
Using the Zacks Earnings ESP to your advantage is just the start. Make sure to check out the Earnings ESP Home Page for even more earnings-related tips and tricks to design a winning investment portfolio.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>
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How to Boost Your Portfolio with Top Retail and Wholesale Stocks Set to Beat Earnings
Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider Advance Auto Parts?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Advance Auto Parts (AAP - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.97 a share, just 21 days from its upcoming earnings release on February 15, 2022.
By taking the percentage difference between the $1.97 Most Accurate Estimate and the $1.95 Zacks Consensus Estimate, Advance Auto Parts has an Earnings ESP of 1.29%. Investors should also know that AAP is just one of a large group of stocks with positive ESPs. All of these qualifying stocks can be filtered by ESP, Zacks Rank, % Surprise (Last Qtr.), and Reporting date.
Using the Zacks Earnings ESP to your advantage is just the start. Make sure to check out the Earnings ESP Home Page for even more earnings-related tips and tricks to design a winning investment portfolio.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>