Back to top

Image: Bigstock

How to Boost Your Portfolio with Top Consumer Discretionary Stocks Set to Beat Earnings

Read MoreHide Full Article

Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.

Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.

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.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 BJ's Wholesale Club?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. BJ's Wholesale Club (BJ - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.85 a share, just one day from its upcoming earnings release on November 17, 2022.

By taking the percentage difference between the $0.85 Most Accurate Estimate and the $0.84 Zacks Consensus Estimate, BJ's Wholesale Club has an Earnings ESP of +1.89%. Investors should also know that BJ is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

BJ is just one of a large group of Consumer Discretionary stocks with a positive ESP figure. Sony (SONY - Free Report) is another qualifying stock you may want to consider.

Sony, which is readying to report earnings on February 1, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.46 a share, and SONY is 77 days out from its next earnings report.

The Zacks Consensus Estimate for Sony is $1.46, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.12%.

Because both stocks hold a positive Earnings ESP, BJ and SONY could potentially post earnings beats in their next reports.

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 >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


BJ's Wholesale Club Holdings, Inc. (BJ) - free report >>

Sony Corporation (SONY) - free report >>

Published in