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.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
The Zacks Earnings ESP, Explained
The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Alamos Gold?
The final step today is to look at a stock that meets our ESP qualifications. Alamos Gold (AGI) earns a #3 (Hold) 26 days from its next quarterly earnings release on November 6, 2024, and its Most Accurate Estimate comes in at $0.24 a share.
Alamos Gold's Earnings ESP sits at +2.86%, which, as explained above, is calculated by taking the percentage difference between the $0.24 Most Accurate Estimate and the Zacks Consensus Estimate of $0.23. AGI 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.
AGI is just one of a large group of Basic Materials stocks with a positive ESP figure. Barrick Gold (GOLD) is another qualifying stock you may want to consider.
Slated to report earnings on November 7, 2024, Barrick Gold holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.35 a share 27 days from its next quarterly update.
Barrick Gold's Earnings ESP figure currently stands at +1.45% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.35.
AGI and GOLD's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
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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See Stocks Now >>Alamos Gold Inc. (AGI) : Free Stock Analysis Report
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
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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.
