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Why Investors Need to Take Advantage of These 2 Basic Materials Stocks Now

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Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.

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.

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, 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.

Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 United States Steel?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. United States Steel (X - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.04 a share 28 days away from its upcoming earnings release on October 26, 2023.

United States Steel's Earnings ESP sits at +2.71%, which, as explained above, is calculated by taking the percentage difference between the $1.04 Most Accurate Estimate and the Zacks Consensus Estimate of $1.02. X 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.

X is just one of a large group of Basic Materials stocks with a positive ESP figure. Dow Inc. (DOW - Free Report) is another qualifying stock you may want to consider.

Dow Inc. which is readying to report earnings on October 24, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.43 a share, and DOW is 26 days out from its next earnings report.

The Zacks Consensus Estimate for Dow Inc. is $0.43, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.67%.

X and DOW'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 >>


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United States Steel Corporation (X) - free report >>

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