Why Investors Need to Take Advantage of These 2 Industrial Products Stocks Now

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.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.

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 Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.

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.

Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 A.O. Smith?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. A.O. Smith (AOS) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $1.01 a share nine days away from its upcoming earnings release on April 25, 2024.

By taking the percentage difference between the $1.01 Most Accurate Estimate and the $0.99 Zacks Consensus Estimate, A.O. Smith has an Earnings ESP of +1.87%. Investors should also know that AOS is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

AOS is part of a big group of Industrial Products stocks that boast a positive ESP, and investors may want to take a look at Parker-Hannifin (PH) as well.

Slated to report earnings on May 2, 2024, Parker-Hannifin holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $6.18 a share 16 days from its next quarterly update.

The Zacks Consensus Estimate for Parker-Hannifin is $6.10, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.35%.

AOS and PH'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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A. O. Smith Corporation (AOS) : Free Stock Analysis Report

Parker-Hannifin Corporation (PH) : Free Stock Analysis Report

To read this article on Zacks.com click here.

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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