How to Find Strong Medical Stocks Slated for Positive Earnings Surprises

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.

Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.

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.

Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.

Should You Consider Alkermes?

The final step today is to look at a stock that meets our ESP qualifications. Alkermes (ALKS) earns a #3 (Hold) 30 days from its next quarterly earnings release on April 24, 2024, and its Most Accurate Estimate comes in at $0.77 a share.

Alkermes' Earnings ESP sits at +12.26%, which, as explained above, is calculated by taking the percentage difference between the $0.77 Most Accurate Estimate and the Zacks Consensus Estimate of $0.68. ALKS is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

ALKS is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Thermo Fisher Scientific (TMO).

Slated to report earnings on April 24, 2024, Thermo Fisher Scientific holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $4.71 a share 30 days from its next quarterly update.

Thermo Fisher Scientific's Earnings ESP figure currently stands at +0.03% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.71.

ALKS and TMO's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

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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Alkermes plc (ALKS) : Free Stock Analysis Report

Thermo Fisher Scientific Inc. (TMO) : Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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