Back to top

Image: Bigstock

Want Better Returns? Don?t Ignore These 2 Basic Materials Stocks Set to Beat Earnings

Read MoreHide Full Article

Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.

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.

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.

Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15% and top 5% of stocks, respectively, should outperform the market. Strong Buy stocks should outperform more than any other rank.

Should You Consider LyondellBasell?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. LyondellBasell (LYB - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.98 a share 29 days away from its upcoming earnings release on October 27, 2023.

By taking the percentage difference between the $1.98 Most Accurate Estimate and the $1.84 Zacks Consensus Estimate, LyondellBasell has an Earnings ESP of +7.59%. Investors should also know that LYB is one of a large group 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.

LYB is part of a big group of Basic Materials stocks that boast a positive ESP, and investors may want to take a look at Albemarle (ALB - Free Report) as well.

Albemarle is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on November 1, 2023. ALB's Most Accurate Estimate sits at $5.48 a share 34 days from its next earnings release.

Albemarle's Earnings ESP figure currently stands at +32.18% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.14.

Because both stocks hold a positive Earnings ESP, LYB and ALB could potentially post earnings beats in their next reports.

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:


Albemarle Corporation (ALB) - free report >>

LyondellBasell Industries N.V. (LYB) - free report >>

Published in