Top 5 Stocks with Solid Earnings Beat Potential

The winning season is just around the corner. So all of the investor's attention would be on the earnings scorecard. It is common to tap into stocks that make solid profits. But instead of picking them based on profit, investing in those likely to exceed market expectations can increase your profits many times over.
Why is a positive result surprise so important?
In the past, stocks of companies with solid quarterly earnings (nominal) fall if they miss or meet market expectations. After all, a 20% increase in earnings (although apparently good looking) doesn't say whether earnings growth has slowed. In this case, the foundations of the company are questionable.
There is also the seasonal variation factor. When a company's first quarter is seasonally weak and fourth quarter strong, expect a sequential decline in earnings. In such cases, growth rates are inconclusive while assessing the true health of the company.
Meanwhile, Wall Street analysts are examining corporate financial data and initiatives to forecast earnings. In fact, they are pooling their knowledge and guidance from the company to come up with a profit estimate. Exceeding this estimate is almost synonymous with exceeding your own expectations and the company's market perception. And when the company manages to significantly outperform earnings, the stock usually rises immediately upon posting.
How do I find these gemstones?
Because it's hard to predict whether a company will beat or miss in the coming earnings season, investors can review its earnings surprise history. A notable track record generally acts as a tailwind. This increases the likelihood that the next version will beat estimates as well, as investors expect the company to use the same old trick to beat expectations or be smart enough to take a hit in the next version.
The winning strategy
In order to shortlist stocks likely to result in an earnings surprise, we have selected the following as our primary screening parameters.
Last EPS surprise greater than or equal to 10%: Equities that showed a positive surprise in the last quarter surprise again.
Average EPS surprise over the past four quarters over 20%: We have raised the bar for outperformance slightly by setting the average earnings surprise for the past four quarters at 20%.
Average EPS surprise over 20% in the last two quarters: This suggests a more consistent surprise history and makes the case for another surprise even stronger.
In addition, we set up a few other criteria that increase the chance of a positive surprise.
Zacks rank less than or equal to 2: Only companies with Zacks rank 1 (strong buy) or 2 (buy) can get through.
Earning ESP Greater Than Zero: A stock must have both a Positive Earning ESP and a Zacks Rank of 1, 2, or 3 for a Profit Strike to be achieved using our proven model.
To identify those with long-term growth potential and high trading liquidity, we have also added the following parameters:
Next 3–5 Years Estimated EPS Growth (Per Year) Over 10%: The solid expected earnings growth shows the long-term growth prospects of the stock.
Average 20-day volume of more than 100,000: A high trading volume requires that the stocks have sufficient liquidity.
A handful of criteria narrowed the universe from over 7,700 stocks to 20.
Here are five of the 20 stocks that passed the screen:
Activision Blizzard Inc (ATVI): Activision Blizzard, Inc. is a leading developer and publisher of console, online and mobile games. It has a rank 2 zack.
YETI Holdings Inc. (YETI): The company designs, markets and sells products for the outdoor and leisure market under the YETI brand primarily in the United States. It has a rank 2 zack.
Brinker International Inc. (EAT): Brinker International owns, operates, develops and sells various restaurants under the brands Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s). It currently has a Zacks rank 1.
Fortinet Inc. (FTNT): This Zacks No. 2 company is a provider of network security appliances and unified threat management network security solutions to businesses, service providers and government agencies worldwide.
SunPower Corporation (SPWR): This company designs, develops, manufactures, markets, and sells high-performance solar power products, systems, and services for residential, commercial, and utility power customers worldwide. It currently has a Zacks rank 1.
You can get the rest of the stocks on this list by signing up for your two-week free trial now on the Research Wizard and using this screen for your own trading. In addition, you can also create your own strategies and test them out first before making the investment leap.
The research assistant is a good place to start. It's easy to use. Everything is in clear text. And it's very intuitive. Start your trial version of the Research Wizard today. And the next time you're reading an economic report, open the research wizard, plug in your finds, and see which gems come out.
Click here to sign up for a free trial of the Research Wizard today.
Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold short securities and / or hold long and / or short positions in options referred to in this material. An affiliate investment adviser may own or have sold short securities and / or hold long and / or short positions in options referred to in this material.
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