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.
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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 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.
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 Par Petroleum?
The final step today is to look at a stock that meets our ESP qualifications. Par Petroleum (PARR) earns a #2 (Buy) 21 days from its next quarterly earnings release on February 22, 2023, and its Most Accurate Estimate comes in at $1.82 a share.
PARR has an Earnings ESP figure of +5.2%, which, as explained above, is calculated by taking the percentage difference between the $1.82 Most Accurate Estimate and the Zacks Consensus Estimate of $1.73. Par Petroleum 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.
PARR is one of just a large database of Oils and Energy stocks with positive ESPs. Another solid-looking stock is Imperial Oil (IMO).
Imperial Oil is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 5, 2023. IMO’s Most Accurate Estimate sits at $1.51 a share 93 days from its next earnings release.
For Imperial Oil, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.41 is +6.74%.
PARR and IMO’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. Check it out here >>