How to bolster your portfolio with top consumer staples stocks that will outperform your gains
Two factors often drive stock prices over the long term: earnings and interest rates. Investors can’t control the latter, but they can focus on a company’s earnings results each quarter.
The winning number itself is key, of course, but a hit or miss in the bottom line can sometimes be just as important, if not more so. Therefore, investors should consider paying special attention to these earnings surprises, as a big hit can help a stock rise and vice versa.
The ability to identify stocks that are likely to beat quarterly earnings expectations can be profitable, but it’s no easy task. Here at Zacks, our Earnings ESP filter helps make things easier.
The Zacks Earnings ESP, explained
The Zacks Expected Surprise Prediction, or ESP, works by locking on to analysts’ most recent earnings revisions, as these can be more accurate than estimates weeks or even months ahead of the actual release date. The mindset is pretty simple: Analysts providing earnings estimates closer to the report are likely to have more information.
The essence of the ESP model is to compare the most accurate estimate to Zacks’ consensus estimate, with the resulting percentage difference between the two being the prediction of the expected surprise. The Zacks rank is also factored into the ESP metric to better find companies that seem poised to beat their next consensus estimate, which will hopefully help lift the stock price.
When we combined a Zacks Rank #3 (Hold) or better and a positive earnings ESP, stocks provided positive surprises 70% of the time. Perhaps most importantly, using these parameters has contributed to an average annual return of 28.3% according to our 10-year backtest.
Stocks ranked 3rd (Hold), meaning most stocks have 60% coverage, are expected to perform in line with the broader market. But stocks that fall in the #2 (Buy) and #1 (Strong Buy) rankings, or in the top 15% and top 5% of stocks, respectively, should outperform the market. Strong buy stocks should outperform any other rank.
Should You Consider Lululemon?
The final step today is to look at a stock that meets our ESP qualifications. Lululemon (LULU) earns 3rd place (Hold) 22 days after the next quarterly earnings release on April 4, 2023 and its most accurate estimate is $4.30 per share.
LULU has an earnings ESP value of +1.29% which, as explained above, is calculated by taking the percentage difference between the most accurate estimate of $4.30 and Zacks’ consensus estimate of $4.25. Lululemon belongs to a large database of stocks with positive ESPs. Make sure to use our earnings ESP filter to uncover the best stocks to buy or sell before they are reported.
LULU is part of a large group of consumer discretionary stocks that have positive ESP and investors may want to take a look Roku (ROKU) as well as.
Roku is scheduled to report earnings on April 27, 2023 and is ranked #3 (Hold) in the Zacks rank, and its most accurate estimate is -$1.47 per share 45 days after the next quarterly update.
The Zacks Consensus estimate for Roku is -$1.48, and taking the percentage difference between that number and their most accurate estimate gives the Earnings ESP figure of +0.7%.
The upbeat ESP numbers from LULU and ROKU tell us that both stocks have a good chance of beating analysts’ expectations in their next earnings report.
Find stocks to buy or sell before they’re reported
Use the Zacks Earnings ESP filter to buy or sell stocks with the highest probability of surprising positively or negatively before they are reported to trade for profitable earnings. Check it out here >>
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Lululemon Athletica Inc. (LULU) : Free Stock Research Report
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