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How to Find Strong Medical Stocks Slated for Positive Earnings Surprises
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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.
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.
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, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
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 Eli Lilly?
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. Eli Lilly (LLY - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.77 a share eight days away from its upcoming earnings release on February 6, 2024.
LLY has an Earnings ESP figure of +0.19%, which, as explained above, is calculated by taking the percentage difference between the $2.77 Most Accurate Estimate and the Zacks Consensus Estimate of $2.76. Eli Lilly 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.
LLY is just one of a large group of Medical stocks with a positive ESP figure. Merck (MRK - Free Report) is another qualifying stock you may want to consider.
Merck is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 1, 2024. MRK's Most Accurate Estimate sits at -$0.07 a share three days from its next earnings release.
The Zacks Consensus Estimate for Merck is -$0.09, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +23.45%.
Because both stocks hold a positive Earnings ESP, LLY and MRK 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 >>
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How to Find Strong Medical Stocks Slated for Positive Earnings Surprises
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.
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.
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, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
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 Eli Lilly?
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. Eli Lilly (LLY - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.77 a share eight days away from its upcoming earnings release on February 6, 2024.
LLY has an Earnings ESP figure of +0.19%, which, as explained above, is calculated by taking the percentage difference between the $2.77 Most Accurate Estimate and the Zacks Consensus Estimate of $2.76. Eli Lilly 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.
LLY is just one of a large group of Medical stocks with a positive ESP figure. Merck (MRK - Free Report) is another qualifying stock you may want to consider.
Merck is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 1, 2024. MRK's Most Accurate Estimate sits at -$0.07 a share three days from its next earnings release.
The Zacks Consensus Estimate for Merck is -$0.09, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +23.45%.
Because both stocks hold a positive Earnings ESP, LLY and MRK 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 >>