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Looking for Earnings Beat? Buy These 5 Top-Ranked Stocks
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Key Takeaways
A screen of 7,700+ stocks highlights AFRM, ROKU, AMZN, HOOD, and NEM as earnings beat candidates.
Each of the five stocks posted over 20% average earnings surprise in the past four quarters.
Criteria included strong surprise history, positive Earnings ESP, and robust long-term growth outlook.
It is not surprising that before an earnings season, every investor looks for stocks that can beat market expectations. This is because investors always try to position themselves ahead of time and look to tap stocks that are high-quality in nature.
Historically, stocks of companies with solid quarterly earnings (on a nominal basis) tank if they miss or merely meet market expectations. After all, a 20% earnings rise (though apparently looks good) doesn’t tell you if earnings growth has been exhibiting a decelerating trend.
Also, seasonal fluctuations come into play sometimes. If a company’s Q1 is seasonally weak and Q4 strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading when judging the true health of a company.
On the other hand, after much brainstorming and analysis of companies’ financials and initiatives, Wall Street analysts project earnings of companies. They, in fact, club their insights and a company’s guidance when deriving an earnings estimate.
Thus, outperforming that estimate is almost equivalent to beating the company’s own expectation as well as the market perception. And if the margin of earnings surprise is big, it typically drives the stock higher right after the release. Thus, more than anything else, an earnings surprise can push a stock higher.
How to Find Stocks That Can Beat?
Now, finding stocks that have the potential to beat on the bottom line may be investors’ dream, but not an easy job. One way to do this is to look at the earnings surprise history of the company.
An impressive track in this regard generally acts as a catalyst in sending a stock higher. It indicates the company’s ability to surpass estimates. And investors generally believe that the company will apply the same secret sauce to execute yet another earnings beat in its next release.
The Winning Strategy
In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the following as our primary screening parameters.
Last EPS Surprise greater than or equal to 10%: Stocks delivering positive surprise in the last quarter tend to surprise again.
Average EPS Surprise in the last four quarters greater than 20%: We lifted the bar for outperformance slightly higher by setting the average earnings surprise for the last four quarters at 20%.
Average EPS Surprise in the last two quarters greater than 20%: This points to a more consistent surprise history and makes the case for another surprise even stronger.
In addition, we place a few other criteria that push up the chance of a positive surprise.
Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) rating can get through.
Earnings ESP greater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen, as per our proven model.
In order to zero in on those that have long-term growth potential and high trading liquidity, we have added the following parameters, too:
Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth exhibits the stock’s long-term growth prospects.
Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity.
A handful of criteria has narrowed down the universe from over 7,700 stocks to only 15.
Here are five out of 15 stocks:
Affirm: This Zacks Rank #1 company specializes in financial technology for payment solutions that provide consumers with flexible, transparent installment loans — both interest-free and interest-bearing — at the point of sale. You can see the complete list of today’s Zacks #1 Rank stocks here.
The average earnings surprise of AFRM for the past four quarters is 102.22%.
Roku: The Zacks Rank #2 company is the leading TV streaming platform provider in the United States, Canada and Mexico based on hours streamed.
The average earnings surprise of ROKU for the past four quarters is 51.15%.
Amazon.com: The Zacks Rank #1 company is one of the largest e-commerce providers, with sprawling operations in North America, now spreading across the globe.
The average earnings surprise of AMZN for the past four quarters is 20.68%.
Robinhood Markets: Robinhood Markets Inc. is a financial services company that offers trading services in crypto, stocks, options, exchange-traded funds (ETFs), cash management, margin and securities lending, and Robinhood Gold. The stock has a Zacks Rank #1.
The average earnings surprise of HOOD for the past four quarters is 20.59%.
Newmont: Newmont Corporation is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia and Ghana. The stock has a Zacks Rank #2.
The average earnings surprise of NEM for the past four quarters is 32.41%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Image: Bigstock
Looking for Earnings Beat? Buy These 5 Top-Ranked Stocks
Key Takeaways
It is not surprising that before an earnings season, every investor looks for stocks that can beat market expectations. This is because investors always try to position themselves ahead of time and look to tap stocks that are high-quality in nature.
In this regard, we ran a screener that yielded stocks Affirm (AFRM - Free Report) , Roku (ROKU - Free Report) , Amazon.com (AMZN - Free Report) , Robinhood Markets (HOOD - Free Report) and Newmont (NEM - Free Report) as the likely winners on the earnings beat potential.
Why Is a Positive Earnings Surprise So Important?
Historically, stocks of companies with solid quarterly earnings (on a nominal basis) tank if they miss or merely meet market expectations. After all, a 20% earnings rise (though apparently looks good) doesn’t tell you if earnings growth has been exhibiting a decelerating trend.
Also, seasonal fluctuations come into play sometimes. If a company’s Q1 is seasonally weak and Q4 strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading when judging the true health of a company.
On the other hand, after much brainstorming and analysis of companies’ financials and initiatives, Wall Street analysts project earnings of companies. They, in fact, club their insights and a company’s guidance when deriving an earnings estimate.
Thus, outperforming that estimate is almost equivalent to beating the company’s own expectation as well as the market perception. And if the margin of earnings surprise is big, it typically drives the stock higher right after the release. Thus, more than anything else, an earnings surprise can push a stock higher.
How to Find Stocks That Can Beat?
Now, finding stocks that have the potential to beat on the bottom line may be investors’ dream, but not an easy job. One way to do this is to look at the earnings surprise history of the company.
An impressive track in this regard generally acts as a catalyst in sending a stock higher. It indicates the company’s ability to surpass estimates. And investors generally believe that the company will apply the same secret sauce to execute yet another earnings beat in its next release.
The Winning Strategy
In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the following as our primary screening parameters.
Last EPS Surprise greater than or equal to 10%: Stocks delivering positive surprise in the last quarter tend to surprise again.
Average EPS Surprise in the last four quarters greater than 20%: We lifted the bar for outperformance slightly higher by setting the average earnings surprise for the last four quarters at 20%.
Average EPS Surprise in the last two quarters greater than 20%: This points to a more consistent surprise history and makes the case for another surprise even stronger.
In addition, we place a few other criteria that push up the chance of a positive surprise.
Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) rating can get through.
Earnings ESP greater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen, as per our proven model.
In order to zero in on those that have long-term growth potential and high trading liquidity, we have added the following parameters, too:
Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth exhibits the stock’s long-term growth prospects.
Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity.
A handful of criteria has narrowed down the universe from over 7,700 stocks to only 15.
Here are five out of 15 stocks:
Affirm: This Zacks Rank #1 company specializes in financial technology for payment solutions that provide consumers with flexible, transparent installment loans — both interest-free and interest-bearing — at the point of sale. You can see the complete list of today’s Zacks #1 Rank stocks here.
The average earnings surprise of AFRM for the past four quarters is 102.22%.
Roku: The Zacks Rank #2 company is the leading TV streaming platform provider in the United States, Canada and Mexico based on hours streamed.
The average earnings surprise of ROKU for the past four quarters is 51.15%.
Amazon.com: The Zacks Rank #1 company is one of the largest e-commerce providers, with sprawling operations in North America, now spreading across the globe.
The average earnings surprise of AMZN for the past four quarters is 20.68%.
Robinhood Markets: Robinhood Markets Inc. is a financial services company that offers trading services in crypto, stocks, options, exchange-traded funds (ETFs), cash management, margin and securities lending, and Robinhood Gold. The stock has a Zacks Rank #1.
The average earnings surprise of HOOD for the past four quarters is 20.59%.
Newmont: Newmont Corporation is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia and Ghana. The stock has a Zacks Rank #2.
The average earnings surprise of NEM for the past four quarters is 32.41%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: http://www.zacks.com/performance.