nearing the end of Q2 earnings season; 95% of the S&P 500 has already reported
and the report card looks like a C-. Growth at the earnings per share level is
a little better than 4% compared to Q2 2011; if you were to back out the
Finance sector, overall earnings are down year over year.
year revenue growth is non-existent, which normally would stifle stock prices,
but the market has shrugged off the lackluster season and it currently hovering
around multi-year highs.
Street pros are not buying this recent rally, but perception is reality and the
reality is that there is still money to be made. The biggest winners have been those companies
exceeding current quarter estimates and at least maintaining their forward
This week’s three stocks are spread around different
sectors, but all those sectors have seen strength this past season.
Zacks Earnings ESP
Earnings ESP is Zacks’ proprietary
methodology for determining which stocks have the best chance to surprise with
their next earnings announcement. The Earnings ESP shows the percentage
difference between the Most Accurate Estimate and the Consensus.
The Zacks ESP helps predict earnings
surprises to the upside and downside; the greater the ESP (positive or
negative) the greater the likelihood for a surprise.
I use ESP to help quantify the
conviction of the analysts for a surprise and stack the odds in my favor when I
combine it with other measurements and statistics.
This can work for bullish potential
surprises (positive ESP) as well as bearish surprises (negative ESP).
Brothers ((TOL - Analyst Report)) is a Zacks Rank 2 stock
with a positive earnings ESP of 29.41% for the current quarter;
the Zacks Consensus is for a profit of 17 cents. Homebuilders have been strong recently and for
good reason; New Home Sales, Building Permits and Housing Starts have been on
the rise and home prices are stabilizing in many areas.
While the stock is up over 100% from its 2012 lows, there might
still be some upside in this east coast homebuilder and today’s homebuilder
downgrade may provide a better entry.
Brothers report earnings on August 22nd
Ciena Corp ((CIEN - Analyst Report)) is a Zacks Rank 3 stock with a positive
earnings ESP of 15.39% for the current quarter; the Zacks Consensus is for
a loss of 13 cents. Cisco (CSCO - Analyst Report) posted strong gains this
quarter and offered some very bullish guidance for the future.
The networking companies have fared relatively well in recent
months and Ciena did beat estimates last quarter. There is no doubt that the company faces some
challenges in the near term; but if they can harness their cloud solutions
potential upside and keep their core strong, shares could see a boost.
Shares have recently exploded to the upside during the most
recent rally to over $17.
report earnings on August 30th.
Royal Bank of Canada ((RY - Snapshot Report)) is a Zacks Rank 2 stock with a positive
earnings ESP of 2.6% for the current quarter.
The Zacks consensus estimate is for Q2 EPS of $1.17, with the most
accurate estimate at $1.20. As stated
earlier, financial stocks have been the big winners this earnings season. While Royal Bank of Canada may have the bulk
of its exposure to our neighbors to the north, that may not be such a bad
unlike the U.S. has been experiencing more strength in housing and in overall
wealth driven mostly by their natural resources. The Canadian Government along with banks like
Royal Bank of Canada have been taking steps to cool the housing market to
prevent a U.S. style bubble and it appears to be working.
upped their short term mortgage rates and if the Canadian Dollar is any sign of
strength, they are looking better off than the U.S. as the “Looney” is trading
at two year highs against the Greenback.
– Royal Bank
of Canada reports earnings on August 30th.
Take Earnings a Step Further
If the ESP
method sounds intriguing to you for improving your portfolio performance, you should
check out Zacks Whisper Trader.
Not only do I
utilize Earnings ESP but I also factor in several critical data sets to create
the “secret sauce” I use to achieve almost 80% accuracy in identifying positive
earnings surprises … before they’re reported.
Senior Equities Strategist, Jared
Levy, is the editor of Whisper
Trader and can show you how to
use the power of Zacks Earnings ESP and earnings surprises for timely, steady
about Whisper Trader now