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These 2 Consumer Discretionary Stocks Could Beat Earnings: Why They Should Be on Your Radar
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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 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.
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 Lululemon?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Lululemon (LULU - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.30 a share one day away from its upcoming earnings release on December 7, 2023.
By taking the percentage difference between the $2.30 Most Accurate Estimate and the $2.27 Zacks Consensus Estimate, Lululemon has an Earnings ESP of +0.92%. Investors should also know that LULU 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.
LULU is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at Royal Caribbean (RCL - Free Report) as well.
Royal Caribbean, which is readying to report earnings on February 6, 2024, sits at a Zacks Rank #1 (Strong Buy) right now. It's Most Accurate Estimate is currently $1.12 a share, and RCL is 62 days out from its next earnings report.
Royal Caribbean's Earnings ESP figure currently stands at +1.23% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.11.
Because both stocks hold a positive Earnings ESP, LULU and RCL 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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These 2 Consumer Discretionary Stocks Could Beat Earnings: Why They Should Be on Your Radar
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 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.
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 Lululemon?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Lululemon (LULU - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.30 a share one day away from its upcoming earnings release on December 7, 2023.
By taking the percentage difference between the $2.30 Most Accurate Estimate and the $2.27 Zacks Consensus Estimate, Lululemon has an Earnings ESP of +0.92%. Investors should also know that LULU 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.
LULU is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at Royal Caribbean (RCL - Free Report) as well.
Royal Caribbean, which is readying to report earnings on February 6, 2024, sits at a Zacks Rank #1 (Strong Buy) right now. It's Most Accurate Estimate is currently $1.12 a share, and RCL is 62 days out from its next earnings report.
Royal Caribbean's Earnings ESP figure currently stands at +1.23% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.11.
Because both stocks hold a positive Earnings ESP, LULU and RCL 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 >>