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How to Find Strong Finance Stocks Slated for Positive Earnings Surprises

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Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

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.

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.

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 ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Ares Capital?

The final step today is to look at a stock that meets our ESP qualifications. Ares Capital (ARCC - Free Report) earns a #2 (Buy) 28 days from its next quarterly earnings release on April 25, 2023, and its Most Accurate Estimate comes in at $0.64 a share.

Ares Capital's Earnings ESP sits at +9.27%, which, as explained above, is calculated by taking the percentage difference between the $0.64 Most Accurate Estimate and the Zacks Consensus Estimate of $0.59. ARCC 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.

ARCC is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Goldman Sachs (GS - Free Report) as well.

Slated to report earnings on April 18, 2023, Goldman Sachs holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $8.61 a share 21 days from its next quarterly update.

The Zacks Consensus Estimate for Goldman Sachs is $8.54, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.85%.

ARCC and GS' positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

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:


The Goldman Sachs Group, Inc. (GS) - free report >>

Ares Capital Corporation (ARCC) - free report >>

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