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 is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.

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.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.

Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15% and top 5% of stocks, respectively, should outperform the market. Strong Buy stocks should outperform more than any other rank.

Should You Consider Super Micro Computer?

The final step today is to look at a stock that meets our ESP qualifications. Super Micro Computer (SMCI Quick QuoteSMCI - Free Report) earns a #2 (Buy) one day from its next quarterly earnings release on January 31, 2023, and its Most Accurate Estimate comes in at $3.15 a share.

Super Micro Computer's Earnings ESP sits at +6.78%, which, as explained above, is calculated by taking the percentage difference between the $3.15 Most Accurate Estimate and the Zacks Consensus Estimate of $2.95. SMCI 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.

SMCI is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at BlackBerry (BB Quick QuoteBB - Free Report) as well.

BlackBerry, which is readying to report earnings on March 30, 2023, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently -$0.06 a share, and BB is 59 days out from its next earnings report.

BlackBerry's Earnings ESP figure currently stands at +7.69% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$0.07.

Because both stocks hold a positive Earnings ESP, SMCI and BB 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 >>