Earnings season is the best time to make quick gains with any cash you may have to spare.

While not all stocks will immediately react the way we expect them to, it has been proved time and again that stocks posting positive surprises have a better chance of upside over the next month or so. Therefore, even if they don’t appreciate immediately after the results, something that will be affected by a variety of factors including actions by market makers, individual investment goals and so forth, a positive surprise will before long translate to positive movement in share prices. At a minimum, they will be more resilient to bad news than other stocks.

Therefore, the number one task in the earnings season is to find stocks that have chances of positive surprises.

Standard methods include study and take time. But we can take short cuts if we have the proper tools and we’re not too risk averse. Tried and tested methods reduce the risk of failure in any case.

The first thing we could look at is the industry in which the company operates. If there are positive factors driving any industry, chances are the same factors are driving the individual stocks. So we should target industries that are doing well. Zacks classifies stocks into around 250 industries and its historical back calculations show that stocks in the top 50% of these industries generally outperform the bottom 50%, especially when paired with a Zacks #1 (Strong Buy) or #2 (Buy) rank.

The Zacks Rank is proprietary methodology that categorizes individual stocks based on analyst estimates. Therefore, a buy ranked stock usually has positive estimate revisions backing it up. And, as we all know, analysts usually have additional information based on their field work and interactions with management and experts. Therefore, they are able to provide informed opinions on a company’s prospects.     

Finally, Zacks has another proprietary tool called the earnings Expected Surprise Prediction (ESP). This essentially gives, as a percentage, the difference between the Zacks Consensus Estimate and the most recent estimate, the logic being that the more recent the estimate, the more informed it is, and therefore, the better it is able to portray the direction of analyst sentiment/estimates. So, when the ESP is positive, and the company has a buy rank, there is a good chance of its beating estimates. As explained above, this in turn is a good indication of share price appreciation.

Let’s take a look at 3 stocks in light of the above criteria:

Procore Technologies, Inc. (PCOR Quick QuotePCOR - Free Report)

Carpinteria, California-based Procore offers a cloud-based construction management platform and software products for collaboration in construction projects through web browsers and mobile applications on iOS and Android platforms. Its solutions span preconstruction, project management, workforce management and financial management operations, enabling real-time collaboration, data storage, design, scheduling, financial tracking and regulatory compliance. The platform caters to owners, general and specialty contractors, architects and engineers. Procore allows users to access its products.

The Zacks Rank #1 stock belongs to the Technology Services industry (top 47%). Therefore, it is relatively well positioned for upside.

The estimate revisions trend is positive with a 7.4% increase for 2023 and an 18.8% increase for 2024 in the last 30 days. Estimates for the June and September quarters remain unchanged.

Its ESP of 6.0% is another positive indicator. Therefore, the company may be expected to beat estimates when it reports on Aug 2.

Owens Corning (OC Quick QuoteOC - Free Report)

Toledo, Ohio-based Owens Corning is a manufacturing company that produces and sells insulation (thermal and acoustical), roofing (shingles and components for residential and commercial construction) and fiberglass composite materials globally.

Owens Corning is also ranked #1. Importantly, it belongs to the Building Products – Miscellaneous industry (top 7%).

While the estimate for 2023 is down in the last 30 days, June and September quarter estimates are up a respective 4.8% and 9.2%. The 2024 estimate is up 7.5% in the last 30 days.

The ESP of 1.1% along with the positive Zacks Rank bodes well for the stock’s earnings performance when it reports on Jul 26.

Rockwell Medical, Inc. (RMTI Quick QuoteRMTI - Free Report)

Wixom, Michigan-based Rockwell develops, manufactures, commercializes and distributes hemodialysis products worldwide. Its products, Triferic Dialysate and Triferic AVNU, help maintain hemoglobin levels in patients undergoing hemodialysis. The company also manufactures and sells hemodialysis concentrates and ancillary products used by dialysis providers. These products are vital for maintaining the health of patients and removing toxins from their bodies during the procedure. The company is also working on therapeutic product candidates for acute heart failure treatment and home infusion therapy. The company's target customers include medium and small-sized dialysis chains and independent dialysis centers.

Rockwell carries a Zacks Rank #1. It belongs to the Medical – Products industry (top 48%).

While the company continues to make losses, loss estimates have been coming down consistently for both the next couple of quarters and years. The estimated loss or June is down a penny while for September, it’s down a couple of cents. For 2023 and 2024, loss estimates are down 6 cents and 15 cents, respectively, in the last seven days.

The ESP of 0%, when coupled with the #1 rank is indicative of an earnings beat when Rockwell reports on Aug 14.

One-Month Price Performance

Image Source: Zacks Investment Research