Investing in Computer and Technology Stocks: A Casual Guide
When it comes to stock prices, two things matter most: earnings and interest rates. While we can’t control interest rates, we can definitely keep an eye on a company’s earnings results every quarter.
We all know that earnings results are crucial, but what’s even more important is how a company performs compared to bottom line expectations. This can have a significant impact on stock prices, especially in the short term. So, if you’re an investor, you might want to take advantage of these earnings surprises.
Now that we understand the importance of earnings and earnings surprises, let’s talk about how investors can make the most of these events to boost their returns. And the secret weapon here is the Zacks Earnings ESP filter.
What’s the Zacks Earnings ESP All About?
The Zacks Earnings ESP, or Expected Surprise Prediction, is all about finding earnings surprises by focusing on the most recent analyst revisions. The idea is that if an analyst revises their earnings estimate before an earnings release, it means they likely have new information that could be more accurate.
The core of the ESP model involves comparing the Most Accurate Estimate to the Zacks Consensus Estimate. The percentage difference between the two gives us the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to help find companies that seem poised to exceed their next bottom-line consensus estimate, which could potentially boost the stock price.
In fact, when we combined a Zacks Rank #3 (Hold) or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time. And using these parameters has helped produce an average annual return of 28.3% over the past 10 years.
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, which make up 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 Synopsys?
Now, let’s take a look at a stock that meets our ESP qualifications. Synopsys (SNPS) is rated a #2 (Buy) nine days before its next quarterly earnings release on November 29, 2023, with its Most Accurate Estimate at $3.07 a share.
Synopsys’ Earnings ESP stands at +0.94%, which is calculated by taking the percentage difference between the $3.07 Most Accurate Estimate and the Zacks Consensus Estimate of $3.04. SNPS is also part of a large group of stocks with a positive ESP. So, make sure to use our Earnings ESP Filter to uncover the best stocks to buy or sell before they report.
Another Stock to Watch: Applied Materials (AMAT)
Scheduled to report earnings on February 15, 2024, Applied Materials holds a #3 (Hold) ranking on the Zacks Rank, with its Most Accurate Estimate at $1.89 a share 87 days before its next quarterly update.
The Zacks Consensus Estimate for Applied Materials is $1.87, and the percentage difference between that number and its Most Accurate Estimate gives us the Earnings ESP figure of +0.97%.
The positive ESP metrics for SNPS and AMAT may indicate that a positive earnings surprise for both stocks is on the horizon.
Find Stocks to Buy or Sell Before They’re Reported
Use the Zacks Earnings ESP Filter to uncover stocks with the highest probability of positively or negatively surprising, and make your moves before they report for profitable earnings season trading. Check it out here >>
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts have each chosen their favorite to skyrocket +100% or more in the coming months. From those 5, Director of Research Sheraz Mian hand-picks one with the most explosive upside.
It’s credited with a “watershed medical breakthrough” and is developing a bustling pipeline of other projects that could make a world of difference for patients suffering from diseases involving the liver, lungs, and blood. This is a timely investment that you can catch while it emerges from its bear market lows.
It could rival or surpass other recent Stocks Set to Double like Boston Beer Company, which shot up +143.0% in little more than 9 months, and NVIDIA, which boomed +175.9% in one year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Synopsys, Inc. (SNPS) : Free Stock Analysis Report
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
+ There are no comments
Add yours