For Immediate Release
Chicago, IL – January 20, 2020 – Stocks in this week’s article are Zumiez Inc. (
ZUMZ Quick Quote ZUMZ - Free Report) , Neurocrine Biosciences Inc. NBIX and Covanta Holding Corp. CVA. Look Beyond Earnings Growth with These 3 Winning Stocks
Fourth-quarter 2019 earnings season has just kicked off with the 31 S&P 500 members reporting results, per
Earnings Trends issued on Jan 15, 2020. Total earnings (or aggregate net income) are down 5.7% year over year on 3.5% higher revenues, with 77.4% surpassing EPS estimates and 74.2% beating on revenues.
While earnings weakness appears to be worrisome so far, impressive beat ratios are giving investors every reason to bet big on an equity market rally. This is because higher earnings (irrespective of the magnitude) are no more that important for solid moves in stock prices. It is the “beat” that matters the most.
Why Should You Prioritize Earnings Beat?
A positive earnings surprise or earnings beat is typically the case when actual or reported earnings come in above the consensus estimate. Historically, if a company’s earnings manage to beat market expectations, its stock surges post release.
This is because investors always try to take positions ahead of time and look for stocks that are likely to come up with a stellar performance. Now, since Wall Street analysts project earnings of companies after much deliberation, their estimates act as investment leads.
After all, only earnings beat can give investors a clear picture of a company’s strength when an industry-wide earnings recession is felt. A 20% earnings rise (though apparently looks good) doesn’t tell you everything about the company’s performance. This might represent a decelerating earnings growth momentum over the years or quarters, raising questions over the company’s fundamentals.
Also, seasonal fluctuations come into play at times. If a company’s Q1 is seasonally weak and Q4 is strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company.
How to Find the Hidden Gems?
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 record in this regard generally acts as a catalyst for the stock. 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 earning beat in its next release.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/722278/look-beyond-earnings-growth-tap-the-beat-with-these-3-stocks 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. About Screen of the Week
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