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How to Find Strong Consumer Staples Stocks Slated for Positive Earnings Surprises
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Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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 Archer Daniels Midland?
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. Archer Daniels Midland (ADM - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.62 a share, just 13 days from its upcoming earnings release on January 26, 2023.
Archer Daniels Midland's Earnings ESP sits at +3.28%, which, as explained above, is calculated by taking the percentage difference between the $1.62 Most Accurate Estimate and the Zacks Consensus Estimate of $1.57. ADM 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.
ADM is part of a big group of Consumer Staples stocks that boast a positive ESP, and investors may want to take a look at Corteva, Inc. (CTVA - Free Report) as well.
Corteva, Inc. is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on February 1, 2023. CTVA's Most Accurate Estimate sits at $0.08 a share 19 days from its next earnings release.
The Zacks Consensus Estimate for Corteva, Inc. is $0.06, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +33.33%.
Because both stocks hold a positive Earnings ESP, ADM and CTVA 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 >>
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How to Find Strong Consumer Staples Stocks Slated for Positive Earnings Surprises
Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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 Archer Daniels Midland?
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. Archer Daniels Midland (ADM - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.62 a share, just 13 days from its upcoming earnings release on January 26, 2023.
Archer Daniels Midland's Earnings ESP sits at +3.28%, which, as explained above, is calculated by taking the percentage difference between the $1.62 Most Accurate Estimate and the Zacks Consensus Estimate of $1.57. ADM 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.
ADM is part of a big group of Consumer Staples stocks that boast a positive ESP, and investors may want to take a look at Corteva, Inc. (CTVA - Free Report) as well.
Corteva, Inc. is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on February 1, 2023. CTVA's Most Accurate Estimate sits at $0.08 a share 19 days from its next earnings release.
The Zacks Consensus Estimate for Corteva, Inc. is $0.06, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +33.33%.
Because both stocks hold a positive Earnings ESP, ADM and CTVA 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 >>