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How to Find Big Winners This Earnings Season

Eric Dutram

It is earnings season again!

While this season brings the potential for big moves, investors are presented with a very interesting situation thanks to recent market performance, as well as the key events on the horizon.

Most stocks are near highs, but equities have fallen into a bit of a slump lately. Stocks are arguably in a holding pattern now, waiting for Washington to either follow through on their promises from November, or abandon their efforts altogether.

In this type of uncertain environment, where a long, drawn out political battle seems likely, investors probably need to put politics to the side and focus on companies with the best fundamentals in order to find winners this earnings season.

One way to uncover them ahead of time is with our proprietary system called 'Earnings ESP' (Expected Surprise Prediction), which can assist you in uncovering these huge winners before they report earnings.

So if you want to increase your odds of success this earnings season -- and who wouldn't given the uncertain backdrop? -- then this is one metric you need to know.

More . . .


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Advance Notice of Earnings Surprises

Imagine knowing which stocks will beat earnings expectations BEFORE their reports are released. You'd be able to get in early and buy them before their prices jump on the good news.

Zacks' record for predicting earnings surprises is staggering. Since perfecting the system, we've been right 83.48% of the time. Investors following its picks have seen double-digit gains in as little as 4 days.

Join the small group of investors who receive this exclusive intel. The doors close on Saturday, April 15.

See Surprise Stocks Now >>

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The Crystal Ball of Earnings Season

While it is impossible to know with complete certainty which stocks will deliver positive surprises this earnings season and which ones will disappoint, our proprietary Earnings ESP system determines which stocks have the best chance to surprise with their next earnings announcement. This method predicts earnings surprises with more than 83% accuracy.

The Earnings ESP is simply the percentage difference between the 'Most Accurate Estimate' and the 'Zacks Consensus Estimate' for a company's upcoming earnings per share number:

Earnings ESP = (Most Accurate Estimate / Zacks Consensus Estimate) -1

The most accurate estimate is the consensus of earnings estimates from analysts over the last 30 days. The Zacks Consensus Estimate, on the other hand, takes the consensus of all analysts' estimates for the quarter, even if that estimate hasn't been revised in three months.

The underlying concept here is that the most recent analyst estimate revisions are usually the most accurate. Think about it -- if an analyst revises his earnings estimate right before an earnings release, he is likely using fresh information that will lead to a more accurate estimate than what analysts predicted two or three months ago.

Just like with a weather forecast that is more accurate for tomorrow than when trying to predict the weather three months from now, the more accurate estimates will usually be the ones that have all the most recent information at their disposal.

For example, let's say specialty retailer XYZ Corp reports earnings next week. The Zacks Consensus Estimate for the coming quarter is comprised of eight analysts' estimates and is $0.75. However, three analysts have increased their earnings estimates for XYZ Corp within the last 30 days.

Perhaps these analysts have recently visited stores and measured traffic, spoken with suppliers, surveyed customers or incorporated recent economic data into their earnings models. The consensus among these recent estimates is $0.78. That would give XYZ Corp an Earnings ESP of 4% ($0.78/$0.75). This company is likely to deliver a positive earnings surprise.

While not all companies that deliver positive earnings surprises will see their stock price rise, studies show that, on average, companies that deliver solid beats see excess returns in their share price for several weeks following the report. This is known as the post-earnings-announcement drift. And finding these stocks before they beat, and then holding them in this 'drift' period, can really boost your returns.

Despite several headwinds facing the market, there are bound to be plenty of large positive surprises this quarter. Utilizing Zacks' Earnings ESP system can greatly increase your odds of finding these big winners before they report.


How Can the Earnings ESP Work for You?

Earnings ESP is a good place to start your stock search. The problem is that in each earnings season, including this one, there are hundreds of stocks with positive ESPs.

That is why our Zacks research team created a special strategy that uses additional filters to narrow down the lists and detect rare companies that are most likely to both beat earnings and experience nice gains during the post-earnings-announcement drift. This is what drives the portfolio I am managing called the Surprise Trader.

I can't share all the details of its formula with you, but I can tell you that it relies on two little-known criteria coming from the brokerage analyst community. These two factors are then layered on top of other time-tested elements such as the Zacks Rank and Zacks Industry Rank to find only the best stocks in the best industries.

This is a significant research breakthrough, and it predicts positive earnings surprises before they are reported, with once-impossible 83.48% precision. If you would like to find out in advance which stocks are most likely to be winners this earnings season -- and position yourself for strong potential profits, then I invite you to join us.

But don't delay. We can't let too many share these recommendations. The portfolio is generally closed to the public. Today it is briefly open again, but your chance for access ends on midnight Saturday, April 15.

Look into the Surprise Trader now >>

Good investing,

Eric

Eric Dutram is Zacks' Earnings Surprise Strategist and manages the Surprise Trader portfolio.


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