These 2 Finance Stocks Could Beat Earnings: Why They Should Be on Your Radar
Wall Street pays close attention to a company's quarterly report to gauge its recent performance and future outlook. Among all the numbers, the one that often stands out is earnings.
In both life and the stock market, expectations are crucial. Exceeding expectations is usually rewarded, while falling short can have negative repercussions. Investors often seek stronger returns by identifying companies likely to deliver positive earnings surprises.
Hunting for 'Earnings Whispers'
Hunting for 'earnings whispers' means looking for companies that might exceed their quarterly earnings estimates. However, this is easier said than done. One proven method is the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
Zacks Earnings ESP stands for Expected Surprise Prediction. This tool aims to identify earnings surprises by focusing on the most recent analyst revisions. If an analyst changes their earnings estimate before an earnings release, it's usually because they have new, accurate information.
How Expected Surprise Prediction Works
The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate. The percentage difference between these two gives you the Zacks ESP figure.
For example:
- If Zacks Consensus Estimate predicts a company will earn $0.50 per share.
- And the Most Accurate Estimate (updated by an analyst) predicts $0.52 per share.
- The ESP formula would be: [(0.52 – 0.50) / 0.50] * 100 = 4% ESP.
Why Zacks Rank Matters
Combining a Zacks Rank #3 (Hold) or better with a positive Earnings ESP, stocks often deliver a positive surprise 70% of the time. This method has historically produced 28.3% annual returns on average.
Zacks Rank Breakdown:
- #1 (Strong Buy): Top 5% of stocks, expected to outperform the market.
- #2 (Buy): Top 15% of stocks, expected to do better than the market.
- #3 (Hold): 60% of all stocks, should perform in line with the market.
Should You Consider AGNC Investment?
Now that we understand the ESP, let's look at a stock that qualifies. AGNC Investment holds a #3 (Hold) ranking. Its Most Accurate Estimate is $0.56 per share, with an earnings release on July 22, 2024.
AGNC's Earnings ESP is +5.66%, calculated as:
[(0.56 – 0.53) / 0.53] * 100 = 5.66%
Another Stock to Consider: Healthpeak
Healthpeak is another stock with a positive Earnings ESP. It also holds a #3 (Hold) ranking and is set to report earnings on July 25, 2024.
For Healthpeak (DOC), the Most Accurate Estimate is $0.44 per share.
The ESP is:
[(0.44 – 0.44) / 0.44] * 100 = 1.15%
What This Means for You
Both AGNC Investment and Healthpeak have positive Earnings ESP figures, suggesting they might post earnings beats in their next reports.
These tools and rankings can help you make informed investment decisions, potentially leading to better returns.
