Why Investors Need to Take Advantage of These 2 Retail and Wholesale 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.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

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.

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.

Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.

Should You Consider Deckers?

The final step today is to look at a stock that meets our ESP qualifications. Deckers (DECK) earns a #3 (Hold) 10 days from its next quarterly earnings release on May 23, 2024, and its Most Accurate Estimate comes in at $3.01 a share.

DECK has an Earnings ESP figure of +12.11%, which, as explained above, is calculated by taking the percentage difference between the $3.01 Most Accurate Estimate and the Zacks Consensus Estimate of $2.68. Deckers is one of a large database 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.

DECK is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at American Eagle Outfitters (AEO) as well.

American Eagle Outfitters is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on May 22, 2024. AEO's Most Accurate Estimate sits at $0.30 a share nine days from its next earnings release.

The Zacks Consensus Estimate for American Eagle Outfitters is $0.27, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +11.11%.

Because both stocks hold a positive Earnings ESP, DECK and AEO could potentially post earnings beats in their next reports.

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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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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