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How Investors Can Grab Better Returns for Finance Using the Zacks ESP Screener

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Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.

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.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% 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 Blackstone Mortgage Trust?

The final step today is to look at a stock that meets our ESP qualifications. Blackstone Mortgage Trust (BXMT - Free Report) earns a #2 (Buy) 29 days from its next quarterly earnings release on October 26, 2022, and its Most Accurate Estimate comes in at $0.70 a share.

BXMT has an Earnings ESP figure of +3.96%, which, as explained above, is calculated by taking the percentage difference between the $0.70 Most Accurate Estimate and the Zacks Consensus Estimate of $0.67. Blackstone Mortgage Trust is one of a large database of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

BXMT is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Starwood Property Trust (STWD - Free Report) as well.

Slated to report earnings on November 8, 2022, Starwood Property Trust holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.58 a share 42 days from its next quarterly update.

Starwood Property Trust's Earnings ESP figure currently stands at +8.75% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.53.

BXMT and STWD's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.

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 >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


STARWOOD PROPERTY TRUST, INC. (STWD) - free report >>

Blackstone Mortgage Trust, Inc. (BXMT) - free report >>

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