Stocks with rising earnings estimates have significantly outperformed the S&P 500 year after year, whereas stocks with falling earnings estimates have underperformed the S&P 500 year after year.
The Zacks Rank has made the process of identifying stocks with changing earnings estimates easy and very profitable. It’s a reliable tool that helps you trade with confidence regardless of your trading style and/or risk tolerance.
The Zacks Rank uses four factors related to earnings estimates to classify stocks into five groups, ranging from ‘Strong Buy’ to ‘Strong Sell.’ Importantly, it allows individual investors to take advantage of trends in earnings estimate revisions and benefit from the power of institutional investors.
Let’s take a closer look at the Zacks Rank in action across several stocks, including beloved Nvidia NVDA, Netflix NFLX, and Alphabet GOOGL.
Nvidia Shares Keep Climbing
Investor-favorite Nvidia reclaimed its Zacks Rank #1 (Strong Buy) rating on May 30th, with shares gaining nearly 10% since. The stock has held a favorable ranking for an extended period now, reflective of analysts’ bullish outlooks regarding its Data Center sales.
The company’s favorable earnings outlook is illustrated below.
Image Source: Zacks Investment Research
Robust quarterly results are expected to keep coming, with the company forecasted to see 130% EPS growth on 110% higher sales in its upcoming release. The company’s revenue growth has been remarkable over the years, as shown below.
Image Source: Zacks Investment Research
And the growth picture remains bright thanks to demand for H200 and Blackwell that’s currently well ahead of supply, with demand potentially exceeding supply well into next year. The H200’s larger and faster memory fuels the acceleration of generative AI and large language models (LLMs) while advancing scientific computing for HPC workloads.
Netflix Shares up 11%
Netflix obtained the highly-coveted Zacks Rank #1 (Strong Buy) back on May 3, with shares up nearly 11% since. The company’s latest set of quarterly results caused shares to face some pressure but have since erased the declines.
Analysts have raised their earnings expectations across the board, with positive revisions following the above-mentioned set of quarterly results.
Image Source: Zacks Investment Research
The streaming giant enjoyed a solid quarter, posting $2.1 billion in free cash flow and seeing its year-to-date operating margin moving higher to 28.1% (20.6% in FY23). The company also maintained its free cash flow outlook of $6 billion for FY24 and repurchased 3.6 million shares throughout the period.
The company’s growth outlook remains bright, with consensus expectations for its current fiscal year suggesting 52% earnings growth on 15% higher sales. The stock sports a Style Score of ‘A’ for Growth.
Image Source: Zacks Investment Research
Alphabet Shares Aren't Expensive
Alphabet was upgraded to a Zacks Rank #1 (Strong Buy) on April 30, with shares gaining 7% since. Like those above, the company’s earnings outlook has become bright across the board.
Image Source: Zacks Investment Research
Shares aren’t overly expensive given the company’s forecasted growth, as the current 21.7X forward 12-month earnings multiple sits right at the five-year median and well beneath five-year highs of 32.6X. Alphabet’s forecasted to enjoy 31% EPS growth on 15% higher sales in its current fiscal year, with consensus expectations for FY25 alluding to an additional 13% earnings growth on 12% higher revenue.
The multiple also compares favorably to the Zacks Computer and Technology sector average of 27.1X.
Image Source: Zacks Investment Research
Bottom Line
As the examples above show, listening to the Zacks Rank can consistently result in market-beating gains, as positive earnings estimate revisions provide the fuel needed to move higher.
All three stocks above – Nvidia NVDA, Netflix NFLX, and Alphabet GOOGL – presently sport a Zacks Rank #1 (Strong Buy), reflecting upward trending earnings estimate revisions.
Visit Zacks Rank Education to learn more about using this proven system for market-beating gains.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
