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How to Find Big Winners This Earnings Season

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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 performances have been very different depending on the sector. Energy remains in the doldrums, while technology and health care are leading the way for investors this time around. However, with worries creeping in over the Fed, ever-present geopolitical risk, and concerns over Washington's next steps, it may be a bumpy ride this season, no matter which market segment you investigate further.

In this type of uncertain environment, investors need to 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 . . .


Advance Notice of Earnings Surprises

What if you were tipped off to handpicked stocks that will exceed earnings expectations? What if you could buy them BEFORE their reports are released?

Since 2014, a Zacks' research breakthrough has predicted positive surprises with previously unthinkable 82.79% reliability. Now you can get in early on these "surprises" before other investors swarm in to drive up the prices. Alert: Access closes this Sunday, July 16.

See Surprise Stocks Now >>


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 system has enabled us to predict earnings surprises with more than 82% 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?

You could start your stock search with this metric. The problem is that in each earnings season, including now, there are hundreds of stocks with positive ESPs.

That's why our Zacks research team created a special strategy with additional filters to narrow down the lists and detect rare companies that are most likely to both beat earnings and soar in price. This drives the portfolio I am managing called the Surprise Trader.

I can't share the exact details of its formula with you, but it relies on two under-used 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 since 2014 it has predicted positive earnings surprises before they are reported, with once impossible 82.79% precision.

Would you like to get in on strong potential profits this earnings season?

Are you ready to jump quickly on the flurry of positive surprises this strategy will turn up?

If so, I invite you to join us.

But don't delay. We can't let too many share these recommendations so it is generally closed to the public. Today it is briefly open again, but your chance for access ends this Sunday, July 16.

Look into the Zacks Surprise Trader now >>

Good investing,

Eric Dutram

Eric is Zacks Surprise Stock and ETF Strategist. As earnings season unfolds this coming week, he invites you to follow his Surprise Trader portfolio.

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