Looking for Stocks with Positive Earnings Momentum? Check Out These 2

Two factors often determine stock prices in the long run: earnings and interest rates. Investors can’t control the latter, but they can focus on a company’s earnings results every quarter.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.

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 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 Twist Bioscience?

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. Twist Bioscience (NASDAQ:TWST) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at -$0.78 a share 11 days away from its upcoming earnings release on August 2, 2024.

TWST has an Earnings ESP figure of +1.68%, which, as explained above, is calculated by taking the percentage difference between the -$0.78 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.79. Twist Bioscience is one of a large database of stocks with positive ESPs.

TWST is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is UnitedHealth Group (NYSE:UNH).

UnitedHealth Group is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on October 11, 2024. UNH’s Most Accurate Estimate sits at $7.09 a share 81 days from its next earnings release.

For UnitedHealth Group, the percentage difference between its…