President Obama was
elected to a second term and equity markets are responding negatively as
expected. Although the knee-jerk selloff
may have been partially motivated by politics, earnings growth trends may be
the hidden fly in the market’s ointment along with fiscal cliff and Euro jitters.
Q3 earnings season is
about 75% complete and the results have been decidedly weak on average.
Total earnings for the
S&P 500 companies reported so far are down roughly 2.7% from the same
period last year, with 60% of the companies beating already low earnings
The revenue side of the
equation looks a bit grimmer, with total revenues down 2% and only 35% of the corporations
reported so far able to beat revenue expectations. Excluding Finance, total earnings and
revenues are down 4.5% and 2.5% from the same period last year,
Expectations for growth
are some of the lowest we have seen in years.
While all this seems
like a recipe for lower stock prices, the low expectations may leave more room
for positive surprise and upside rallies in stocks that still remain relatively
inexpensive from a price to earnings perspective. The recent price corrections in many stocks may also help.
Finding stocks with the
best chances of winning could be the best path to finding rising stock prices
on earnings and the Zacks Earnings Surprise Prediction or ESP helps target
About 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).
Bullish ESP Stocks
Molycorp () is a Zacks Rank 3 stock with a positive earnings ESP of 1983%
for the current quarter (no that’s not a typo); This is due to the Zacks
Consensus seeing a profit of just 1 cent in Q3 with the most accurate estimate looking for 25 cents.
Molycorp has had a tough year; their stock
dropping to just $9.00 per share from an earlier high near $36. The drop can be attributed to flat demand for
rare earths and China monopolizing prices.
The pentagon and several companies are also
putting pressure on China to help stabilize the market and rare earth prices,
which would help rare earth miners.
Another boost is that Obama has pledged to support and push for green
energy sources, many of which are dependent upon rare earths.
With MCP now below its IPO price, there may be
upside for the shares.
– Molycorp reports earnings on November 8th
Beazer Homes is a Zacks Rank 2 stock with a positive earnings ESP of 13.7%
for the current quarter; the Zacks Consensus is for a loss of $1.11.
While this quarter may register a loss for the
company, analysts are expecting relative strength in the quarter and a major reduction
in losses for 2013.
Homebuilders have been strong and the
low-interest rate environment combined with the strength in sales and stability
in home prices should help Beazer going into their report.
– Beazer reports earnings on November 12th
Five Below Inc. (FIVE - Snapshot Report) is a Zacks Rank 2 stock with a positive
earnings ESP of 114.3% for the current quarter. The Zacks consensus
estimate is for Q3 EPS of $0.014, with the most accurate estimate at $0.03.
Five Below is a teen and pre-teen retailer offering products all priced at $5
Retail is one of the sectors that many believe will
fare well no matter who took the White House.
The fact that FIVE offers less expensive products may position them well
for the still recovering consumer.
The fact that the stock is 25% off its highs for
the year makes it a bit more attractive.
– Five Below reports earnings on December 11th
Take Earnings a Step Further
If the ESP method sounds intriguing to you for
improving your portfolio performance, especially in uncertain times, 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 better than 80% accuracy in identifying positive earnings surprises…
before they’re reported.
Equities Strategist, Jared A Levy, is featured on Fox Business regularly and is
the editor of Whisper Trader. He can
show you how to use the power of Zacks Earnings ESP and earnings surprises for
timely, steady gains.
Learn more about Whisper Trader now