The Best Way to Make Money with Earnings Surprises
This could be one of the most important earnings periods in a long period.
Investors now feel secure after a pause was made in the red hot CI numbers. But you and I both know, it’s only a matter of time before the Fed throws a cold bucket of water on our parade. The Fed has committed to not only continuing to increase rates, but they are bent on sticking with higher rates “for an extended period of time.”
It’s also the beginning of a new year, which means new opportunities for profit. Who would have thought that tech titans would fall and energy stocks would perform so well in the new year? To find the right opportunity, we will need to look at the tea leaves in the early part of the season.
Investors also face huge risk during earnings season. Will central banks in the world keep their hawkishness on the market? Or will inflation continue to slide in a bit, giving investors hope for the end and growth that will return without the looming threat of inflation?
Major market averages have rebounded from the lows. Overhead resistance is now starting to emerge. Is it possible for the market to overcome these long-term averages in the face such a Fed that is too hawkish and with lowered growth prospects?
There are many reasons investors should be worried. There is a silver lining in this storm. Stocks should rise if corporate earnings are better that expected. Stocks will likely experience a deeper correction if profits are lower than expected.
That’s the story of the entire market. Individual stocks will see big winners and losers based on their reports. This is one of the most confusing aspects about earnings season:
Some stocks rise on positive earnings surprises, while others plummet to the ground.
This article will discuss the topic so we can better understand it. Even better, I’m going to share with you two ways to profit from surprises this earnings season. We’ll get to that more later.
3 Reasons Stocks can Drop after a Surprise Positive Earnings
1) Estimates vs. Expectations: An earnings surprise is an actual increase in earnings that exceeds earnings estimates. These estimates, however, are not the actual earnings. “published” Numbers from brokerage analysts. Investors can have very different expectations from Wall Street analysts. In order to satisfy investors’ overly optimistic expectations, there will be an increase in actual earnings if there is too little optimism prior to the release. This is why stocks often fall following a release. “supposed” Earnings beat.
2) Quality of Earnings Strong revenue growth is the key to high quality earnings. This means that the company’s products or services are in high demand and should stay that way into the future. However, these days far too much of the earnings being reported are generated from cost cutting and other “accounting gimmickry”. The problem with this is that the benefits of these moves don’t last. Stocks will fall if the market smells earnings that aren’t sustainable, no matter how strong they may be.
3) Forward Guidance Simply put, you own a share of stock when you purchase it. The future earnings stream is what company owners care about. The stock of a company that beats earnings in the most recent quarter, but warns about lower earnings in future quarters is a sign that it will lose its value. And you will go down fast.
Two Ways to Make Money with Earnings Surprises
Now that we’ve discussed the potential problems that could arise from an earnings surprise, let us shift gears to discuss something more important: how to make a profit out of earnings surprises. Here are two methods to do it.
Continue reading . .
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These stocks should be bought BEFORE they report earnings
In the next three weeks, 1,133 companies are set to report earnings.¹ What if you could know in advance which few would shock Wall Street by beating earnings expectations and pop in price?
Now you can.
Zacks’ proprietary “ESP” formula predicts positive earnings surprises with unthinkable 81.39% accuracy!¹ Investors following its picks have seen double-digit gains in a matter of days.
What stocks is the system choosing today? Before doors close to new investors, find out. midnight Monday, January 16.
See Surprise Stocks Now >>
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A good way to: You can buy shares in companies that have experienced earnings surprises and saw their stock rise on the following day. These stocks experience what academics refer to as the “Theatrical Effect”. “Post Earnings Announcement Drift. These stocks have a proven track record of outperforming the market for the next nine months according to research. You should also sell any stock in your portfolio which has missed its earnings numbers, as it will likely underperform the market over the next few quarters. There are literally thousands more stocks to choose between every quarter.
The Best Way: Find stocks that have high earnings “whispers” This will alert you to a major surprise. Purchase the shares immediately before the announcement to enjoy quick gains of 10%-15%, or even 20% once the earnings surprise is officially announced.
I know what you’re thinking. How is this possible? There aren’t Magic 8-balls to help the stock market. But fret not – this isn’t a magic show. It’s pure science.
Stock investing has been dominated by the idea of finding a source of income that is profitable. Many people have failed to find this method. This was something we’ve been doing for many years.
We discovered clues early on that indicated stocks more likely surprise but not necessarily increase in price. It wasn’t until the summer of 2010 that we discovered the right combination of elements. Since 2014 refinements, the system correctly calls POSITIVE surprise a staggering 81.39% of times, with most of them increasing in price.
This breakthrough is easy to apply
Here’s the challenge: In each earnings season, including the current one, there are hundreds of stocks that are likely to achieve positive surprises.
The Zacks research group put so much effort in creating a unique strategy that allows for additional filters to narrow the list. It finds rare companies that are more likely to either beat earnings or jump in price.
This is the driving force behind the portfolio I manage called the Zacks Surprise Trader.
While I don’t have all the details, the system is based upon two signals from the brokerage analyst community. These two whispers are then layered onto other time-tested elements, such as the Zacks Rank (or Zacks Industry Rank) to find only the most desirable stocks… in the best sectors… with the highest chances of beating earnings… and rapidly rising.
Please visit our Surprise Trader portfolio if you are interested in receiving our exact whisper trading signals during this earnings season.
This is the best time to do so. There are 1,133 companies that will report earnings over the next three weeks. I have selected a few standouts to predict they will exceed my expectations when their earnings reports are published.
New Surprise Stock to Post after the Market Opens Tuesday Morning
Check our live recommendations right now, and be first to view the one I’m adding Monday. Even before companies report earnings, ripples of buying can be used to your advantage.
Don’t miss this chance to beat Wall Street by the punch and profit from double-digit price spikes. Our signals have predicted big positive surprises, and they have been correct 81.39% of time.
Even 2022, which was the most bearish of all years since 2008, is still bearish Surprise Trader 21 quick double-digit gains were achieved. Here’s an example +62.5%, +24.3%, +59.8%And +19.5% in as little as 10 days.²
Bonus Report It is also a good idea to get our new “Early Warning Alert”, report. It contains: Stocks to sell BEFORE they report earnings in the coming weeks. This strategy is both a win-win situation. You can use the report to identify companies more likely to reveal negative surprises between January 17 and 27.
But don’t delay. The public is generally not allowed to see our “surprise” recommendations. The portfolio is now open, but you won’t be able to access it. Monday, January 16 at midnight.
Check out our Surprise Trader stocks and “Early Warning Alert” right now >>
All the best
Dave
Zacks’ resident earnings expert is Dave Bartosiak. He picks stocks and provides daily commentary to our readers. Portfolio of Surprise Traders.
¹ As of 1/9/2023
² The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research’s newsletter editors and may represent the partial close of a position.
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