Benzinga - by Zacks, Benzinga Contributor.
Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
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.
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 Cleveland-Cliffs?
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. Cleveland-Cliffs (NYSE: CLF) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.21 a share, just 10 days from its upcoming earnings release on April 22, 2024.
By taking the percentage difference between the $0.21 Most Accurate Estimate and the $0.19 Zacks Consensus Estimate, Cleveland-Cliffs has an Earnings ESP of +12%. Investors should also know that CLF 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.
CLF is just one of a large group of Basic Materials stocks with a positive ESP figure. United States Steel (NYSE: X) is another qualifying stock you may want to consider.
Slated to report earnings on April 25, 2024, United States Steel holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.89 a share 13 days from its next quarterly update.
United States Steel's Earnings ESP figure currently stands at +11.94% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.79.
CLF and X's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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.
Highest Returns for Any Asset Class
It's not even close. Despite ups and downs, Bitcoin has been more profitable for investors than any other decentralized, borderless form of money.
No guarantees for the future, but in the past three presidential election years, Bitcoin's returns were as follows: 2012 +272.4%, 2016 +161.1%, and 2020 +302.8%. Zacks predicts another significant surge in months to come.
To read this article on Zacks.com click here.