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.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

The Zacks Earnings ESP, Explained

The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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.

Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Amgen?

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. Amgen (AMGN Quick QuoteAMGN - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $4.95 a share, just six days from its upcoming earnings release on August 6, 2024.

Amgen's Earnings ESP sits at +0.48%, which, as explained above, is calculated by taking the percentage difference between the $4.95 Most Accurate Estimate and the Zacks Consensus Estimate of $4.92. AMGN is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

AMGN is just one of a large group of Medical stocks with a positive ESP figure. ResMed (RMD Quick QuoteRMD - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on August 1, 2024, ResMed holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.09 a share one day from its next quarterly update.

The Zacks Consensus Estimate for ResMed is $2.03, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.85%.

Because both stocks hold a positive Earnings ESP, AMGN and RMD 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 >>