The best mornings are the ones where you wake up to a positive earnings surprise and big profits.
The worst mornings are the ones where you wake up to an earnings miss and heavy losses.
Finally, it’s beginning to feel like the world has COVID-19 on the ropes. The fight is not over, but we can see the light at the end of the tunnel. The threat of the pandemic has lingered over the stock market like a cloud for months. As the clouds move aside, yet another threat is apparent on the horizon…inflation and tapering from the Fed.
We are already dealing with supply chain constraints, a lack of semiconductor chips, and labor shortages. That means we’ve got a delicate balance of risk and reward heading into this quarter’s round of earnings.
With so much riding on this quarter’s round of reports, one thing is evident:
Nothing can move a stock faster, up or down, than an earnings announcement.
This is especially true today with the stock market coming down from all-time highs and approaching key technical levels. Over the last quarter, Energy stocks have come back en vogue, with double digit returns while Basic Materials have struggled, giving back over 6%.
Any stocks unfortunate enough to hiccup this earnings season, and not meet the lofty expectations of investors will be severely punished. This will lead to devastating losses for those unlucky shareholders. However, the owners of stocks with positive surprises will be richly rewarded. So now is the perfect time to align your portfolio to profit in the month ahead.
You should already know Zacks Investment Research specializes in the coverage of corporate earnings. And more importantly, how to profit from this information. So, today I'm going to share with you 3 proven secrets to profit from earnings announcements.
(Hint: Be sure to read to the end as the 3rd strategy is by far the most profitable)
Secret 1: Target 4 Leading Indicators of Positive Earnings Surprises
The most obvious strategy is the reason we are all here. The 4 leading indicators I refer to are the 4 factors of the Zacks Rank. Before you skip this section, let me share some information with you that you may not have known.
In the mid-1970s Len Zacks took his mathematical skills to Wall Street where his job was to discover stock picking strategies that would beat the market. He had a simple theory that was the precursor to what became the Zacks Rank.
Len focused his research on finding stocks that were more likely to have a positive earnings surprise and jump on the news. The journey led him to what we know as the 4 factors of the Zacks Rank. Each individually increases the odds of owning stocks that will enjoy a positive earnings surprise.
However, when you combine them together inside the Zacks Rank it becomes an almost obscene advantage for investors.
Continued . . .
Buy These Stocks BEFORE They Report Earnings
Next week 301 companies are set to report earnings. What if you could know in advance which few look to rock Wall Street and pop in price?
Now you can.
Zacks' proprietary "ESP" formula predicts positive earnings surprises with unthinkable 80.70% accuracy. This has led to recent closed gains of +77.9%, +70.9%, +55.9%, and even +114.4% in as little as 5 days.¹
Your chance for access closes at midnight Sunday, October 17.
See Surprise Stocks Today >>
Secret 2: Stop the Bleeding
This second secret is simple, yet hard for most investors to do. So, I'm going to repeat it again and again...until I wear out the words!
Sell All Companies with a Negative Earnings Surprise!
Yes. Immediately. Do Not Pass Go. Do Not Collect $200. Sell! Even after it falls at the open. Even if it is for a substantial loss. Why? Better to take a 5-10% loss in the short run than a 20 to 40% loss in the long run.
Keep in mind how earnings estimates are created. Both company executives and brokerage analysts do their best to create conservative estimates that the company should easily beat. It's all about lowering the bar. So when a company falls short of those watered-down estimates it points to one of two serious problems:
• Industry conditions have deteriorated and thus they missed their forecasts. This problem most likely will not correct itself in the near-term, leading to further disappointment.
• Management is incompetent. Meaning that they are clueless when it comes to estimating their own earnings. Or growth strategies are simply ineffective.
Either reason is enough cause to abandon the stock immediately and move on to greener pastures.
Secret 3: Harness Real "Earnings Whispers"
Consider the following chain of logic:
• Wall Street analysts create earnings estimates.
• These analysts are highly motivated to create conservative estimates that can easily be beat. Why? If they have a Buy rating on a stock, and the estimates are too high, then the stock is more likely to disappoint. This would send the stock price lower and the performance on their stock ratings would be poor (leading to lower compensation for the analysts).
• The closer to earnings season we get, the more accurate the information the analyst has at their disposal to put into the estimate since there is less time left to estimate performance.
Add it all up and no analyst would increase estimates close to the date of the earnings report unless there was a DARN GOOD REASON. Focusing on those estimates closest to the earnings announcement is where we've found the "whisper that becomes a scream." ...a clear indication from the analyst community of stocks more likely to beat earnings by a wide margin. And most importantly, rise on that news.
The Easy Way to Apply These Secrets
The problem is that in each earnings season, including now, there are hundreds of stocks that are likely to achieve positive surprises.
That is why our Zacks research team created a special strategy that uses additional filters to narrow down the lists. It detects rare companies that are most likely to both beat earnings and jump in price.
This drives the portfolio I am managing called the Zacks Surprise Trader.
I can't share all the details of the secret formula with you, but our system relies on two under-utilized signals coming from the brokerage analyst community. These two whispers 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... with the best chances of beating earnings and quickly rising in price.
If you would like to receive our precise whisper trading signals through the heart of this earnings season, I invite you to look inside our Surprise Trader portfolio ASAP.
Now is the absolute best time to do it. Right now, "Positive Surprise" signals are flashing for 5 select companies that are reporting earnings starting this coming week. Here's the timeline:
• Deadline to get into the portfolio is midnight Sunday, October 17.
• 4 surprise stocks were recently posted that have yet to report.
• 1 more yet-to-report company will be posted Monday morning.
• Those 5 companies will start reporting earnings on Tuesday after market close.
So don't miss your chance to beat Wall Street to the punch and make the most of the potential double-digit price pops. Our signals predict big positive surprises and they've been right a remarkably consistent 80.70% of the time!
They’ve led us to many recent gains like +114.4%, +77.9%, +55.9%, and +70.9% in as little as 5 days.¹
Bonus: Another reason to look into this right away is that you are also invited to download our just-released "Early Warning Alert" report. It reveals Stocks to Sell BEFORE They Report Earnings in the Coming Weeks. Our strategy works both ways, and you can use this report to avoid companies that are more likely to report negative surprises from October 18-29.
See our Surprise Trader stocks and “Early Warning Alert” now >>
Wishing you great financial success,
Dave Bartosiak is Zacks' resident earnings surprise expert. He selects stocks and delivers daily commentary for our Surprise Trader portfolio.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.