- 20 июля 2018, 22:30
- Zacks Investment Research
The best mornings are the ones where you wake up to a positive earnings surprise and big profits.
The worst mornings are the ones where you wake up to an earnings miss and heavy losses.
It's mid-Summer and with earnings season kicking into full gear there are few things that can move a stock faster, up or down, than an earnings report.
This is especially true now given the stock market is reaching critical technical levels. The NASDAQ and the Russell 2000 Small Cap indexes are pushing on through all-time highs. These new highs have to be justified by earnings. If we don't get the positive moves in earnings, then the market could retreat.
Any stocks unfortunate enough to hiccup this earnings season will be severely punished. This will lead to devastating losses for those unlucky shareholders. However, the owners of stocks with positive surprises will be richly rewarded. So now is the perfect time to align your portfolio to profit in the month ahead.
You should already know Zacks Investment Research specializes in the coverage of corporate earnings. And more importantly, how to profit from this information. So, today I'm going to share with you 3 proven strategies to profit from earnings announcements.
(Hint: Be sure to read to the end as the 3rd strategy is by far the most profitable.)
Strategy 1: Four Leading Indicators of Positive Earnings Surprises
The most obvious strategy is the reason we are all here. The 4 leading indicators I refer to are the 4 factors of the Zacks Rank. Before you skip this section, let me share some information that you may not have known.
In the mid-1970s Len Zacks took his mathematical skills to Wall Street where his job was to discover stock picking strategies that would beat the market. He had a simple theory that was the precursor to what became the Zacks Rank.
Len focused his research on finding stocks that were more likely to have a positive earnings surprise and jump on the news. The journey led him to what we know as the 4 factors of the Zacks Rank. Each individually increases the odds of owning stocks that will enjoy a positive earnings surprise.
However, when you combine them together inside the Zacks Rank it becomes an almost obscene advantage for investors.
More . . .
In the coming week, 834 companies are set to report earnings. What if you could know in advance which few look to rock Wall Street and pop in price?
Now you can. Zacks' proprietary formula predicts positive earnings surprises with previously unthinkable 80.25% accuracy. Investors following its picks have recently harvested double-digit gains in as little as 1 day.
One new stock was just posted Friday and another is coming Monday morning. Companies on our select list will be reporting as soon as Monday, after market close. You can get in on them before they report, but access is limited and this opportunity ends midnight Sunday, July 22.
Strategy 2: Stop the Bleeding
This second strategy is simple, yet hard for most investors to do. So, I'm going to repeat it again and again...until I wear out the words!
Sell All Companies with a Negative Earnings Surprise!
Yes. Immediately. Do Not Pass Go. Do Not Collect $200. Sell! Even after it falls at the open. Even if it is for a substantial loss. Why? Better to take a 5-10% loss in the short run than a 20% to 40% loss in the long run.
Keep in mind how earnings estimates are created. Both company executives and brokerage analysts do their best to create conservative estimates that the company should easily beat. It's all about lowering the bar. So when a company falls short of those watered-down estimates it points to one of two serious problems:
• Industry conditions have deteriorated and thus they missed their forecasts. This problem most likely will not correct itself in the near-term, leading to further disappointment.
• Management is incompetent. Meaning that they are clueless when it comes to estimating their own earnings. Or growth strategies are simply ineffective.
Either reason is enough cause to abandon the stock immediately and move on to greener pastures.
Strategy 3: Harness Real "Earnings Whispers"
Consider the following chain of logic:
• Wall Street analysts create earnings estimates.
• These analysts are highly motivated to create conservative estimates that can easily be beat. Why? If they have a Buy rating on a stock, and the estimates are too high, then the stock is more likely to disappoint. This would send the stock price lower and the performance on their stock ratings would be poor (leading to lower compensation for the analysts).
• The closer to earnings season we get, the more accurate the information the analyst has at their disposal to put into the estimate since there is less time left to estimate performance.
Add it all up and there is no good reason for an analyst to increase estimates close to the date of the earnings report unless they had a DARN GOOD REASON. Focusing on those estimates closest to the earnings announcement is where we've found the "whisper that becomes a scream" ...a clear indication from the analyst community of stocks more likely to beat earnings by a wide margin. And most importantly, rise on that news.
Where to Find These Earnings Whisper Stocks?
I can't share all the details of our proprietary formula with you, but our system relies on two very under-used signals coming from the brokerage analyst community. These two whispers are then layered on top of other time-tested elements such as the Zacks Rank and Zacks Industry Rank to find only the best stocks in the best industries to profit from each earnings season.
If you would like to receive our precise whisper trading signals, then go ahead and check out the portfolio I am directing called Zacks Surprise Trader.
This is the time to do it. From 834 companies scheduled to report earnings this coming week, "Positive Surprise" signals are flashing for a select handful. Here's the timeline:
• Deadline to get into the portfolio is midnight Sunday, July 22.
• One new surprise stock was posted just this Friday and another will be revealed Monday morning so you can be among the first to take advantage.
• Companies on our recommendation list will start reporting as soon as Monday, after market close.
So it's worth looking into this right now. Remember, our signals have been right 80.25% of the time -- a rate that was once unimaginable. This has led to double-digit gains in as little as 1 day.
Don't miss the chance to beat Wall Street to the punch and make the most of these potential price pops.
As a bonus, you're invited to download our "Early Warning Alert" report free. It reveals Stocks to Sell Before They Report Earnings in the Coming Week. Our strategy works both ways, and you can use this report to avoid companies that are likely to report the worst negative surprises next week, July 23-27.
Please be advised that we can't let too many share these recommendations -- both positive and negative -- and must close the door to new investors by midnight this Sunday, July 22.
Wishing you great financial success,
Dave Bartosiak is Zacks' resident earnings surprise and momentum expert. He selects stocks and delivers daily commentary for our Surprise Trader portfolio.
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