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We have arrived at the start of a rate cut cycle from the Fed. This is something the market hasn't faced since Fed cut rates during COVID. Central banks worldwide are struggling with the delicate balancing act of keeping inflation in check while stopping short of snuffing out the global economy. Also, investors stare head-first into a "new" administration. I used the quotes there because we've seen this movie before…sort of. Trump 2.0 will undoubtedly share similar themes from the first administration. As such, the market is digesting just what tariffs and other forms of economic protectionism might bring. One thing is for certain, the market is red-hot heading into this earnings season. Tech stocks are teetering at all-time highs, fueled by speculation and advancements in AI. It's not exactly the sort of environment you'd expect with rate cuts being the talk of the Fed. That is the story for the overall market. As for individual stocks, there will be big winners and losers depending on the strength of their reports. This brings to mind one of the most confusing things about earnings season: Why do some stocks skyrocket on a positive earnings surprise while others fall off a cliff? In this article we are going to tackle this little understood issue. Better yet, I will share with you two ways to profit from surprises this earnings season. More on that later. 3 Reasons Stocks Can Drop After a Positive Earnings Surprise 1) Estimates vs. Expectations: The standard definition of an earnings surprise is when actual earnings comes in higher than earnings estimates. But those estimates are the "published" numbers from the brokerage analysts. Quite often investors tend to develop their own unique set of expectations that can differ greatly from the Wall Street analysts. If there is too much optimism ahead of the release, then actual earnings will need to be a blowout in order to appease investors' inflated expectations. This is the most common reason why some stocks fall after a "supposed" earnings beat. 2) Quality of Earnings: The highest quality earnings come from having robust revenue growth. 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 is generated from cost cutting and other "accounting gimmickry". The problem with that is that the benefits of these moves don't last. When the market gets a whiff that the earnings are unsustainable, no matter how strong the beat, shares will most likely drop. 3) Forward Guidance: Plain and simple, when you buy a stock you are taking an ownership stake. And what owners of companies care about is the stream of future earnings. So if a company beats earnings for the quarter just reported, but warns that future quarters will see lower earnings, then that stock will go down... and go down fast. 2 Ways to Make Money on Earnings Surprises So now that we have outlined things that can go wrong after an earnings surprise, let's shift gears and talk about something even more important; How to turn a profit from earnings surprises. Here are two ways to go about it. More . . . | ||||
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| Good Way: Buy shares in any company that had an earnings surprise and rose the day following the news. These stocks experience what academics call the "Post Earnings Announcement Drift". Studies clearly show that these stocks usually outperform the market over the next 9 months. Conversely, you should sell any stock in your portfolio that misses its earnings numbers as it is likely to underperform the market for the next few quarters. The downside of this approach is that there are literally thousands of stocks to choose from every quarter. Best Way: Find stocks where the earnings "whispers" tip you off that a big surprise is coming. Buy the shares shortly before the announcement and enjoy quick gains of 10%, 15%, 20% when the earnings surprise is officially reported. I know what you're thinking. There are no Magic 8-balls for the stock market, so how can this be possible??? But fret not; this isn't a magic show. It's pure science. The concept of finding a profitable source of earnings whispers has long been the Holy Grail of stock investing. Many experts have tried and failed to make this work. In fact, we had been researching this for countless years. Early on we found clues that identified stocks more likely to surprise, but not necessarily rise in price. It wasn't until the summer of 2010 that we discovered the right combination of elements. Since refinements were made in 2014, the system has correctly called POSITIVE surprises a whopping 80% of the time with the vast majority accelerating in price. The Easy Way to Apply This Breakthrough In each earnings season, including this one, there are thousands of stocks that could announce positive surprises. That is why the Zacks research team invested so much time and effort to create a special strategy that narrows down the lists. It detects rare companies that are most likely to both beat earnings and jump in price. This drives the portfolio I am managing called the Zacks Surprise Trader. Our system relies on two under-used signals coming from the brokerage analyst community. These two whispers are then layered on top of other proven elements such as the Zacks Rank and Zacks Industry Rank to find only the best stocks... in the best industries... with the best chances of beating earnings and quickly rising in price. If you would like to receive our precise whisper trading signals through the heart of this earnings season, I invite you to look inside our Surprise Trader portfolio ASAP. Now is the absolute best time to do it. From 78 companies scheduled to report earnings next week, I have locked onto a small handful of standouts predicted to exceed expectations and surge in price. New Surprise Stock to Post Monday Morning Check our live recommendations right now, and be among the first to see the brand new pick I'm adding Monday. You can take advantage of ripples of buying even before the company reports earnings. Don't miss your chance to beat Wall Street to the punch and make the most of the potential double-digit price pops. Our signals predict big positive surprises and they've been right a remarkably consistent 80% of the time! They've led us to recent gains like +49.8%, +28.5%, and +39.9% in as little as 4 days.¹ Bonus Report: Another reason to look into this now is that you are also invited to download our just-released "Early Warning Alert" report. It reveals Stocks to Sell BEFORE They Report Earnings in the Coming Weeks. Our strategy works both ways, and you can use this report to avoid companies that are more likely to report negative surprises from January 13 through January 24. See our Surprise Trader stocks and "Early Warning Alert" before the deadline - Sunday, January 12 » All the Best,
Dave Bartosiak is Zacks' resident earnings surprise expert. He selects stocks and delivers daily commentary for our Surprise Trader portfolio. | ||||
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| ¹ 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. Access grants you a comprehensive list of all open and closed trades. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". https://www.zacks.com/terms_of_service Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or U.S. investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through December 2, 2024. The performance is the equal weighted performance of a hypothetical portfolio consisting of stocks with a Zacks Rank of #1 that was rebalanced monthly from January 1988 through December 2013 and weekly from 12/31/13 through Monday's open on December 2, 2024. For each stock with a Zacks Rank #1 at the beginning of the month, the total return during the month was calculated as the % change in the price of the stock from the closing price of the prior month to the closing price of the current month plus any dividends received during the month. The monthly individual stock returns were then averaged to determine the portfolio return for the month. For each stock with a Zacks Rank #1 at the beginning of the week, the total return during the week was calculated as the % change in the price of the stock from the opening price for the week to the opening price of the next week plus any dividends received during the week. The weekly individual stock returns were then averaged to determine the portfolio return for the week. If no month-end price or week end open price was available for a stock, it was not included in the portfolio return for the month or the week. The monthly and weekly returns were compounded to arrive at the annual returns. The annualized return is the annual return that, had it been achieved in each year or portion of a year, would have compounded to create the total return over the full time period. These returns are based on the list of Zacks Rank #1 Stocks that was available to clients of Zacks as of the beginning of the month, when returns were calculated monthly, or as of the beginning of the week when returns were calculated weekly. These returns are higher than the returns an investor could achieve investing real money in a portfolio of Zacks Rank #1 stocks because the returns of the hypothetical Zacks Rank #1 portfolio exclude a number of costs, including commissions incurred for trading, the average bid ask spread, the price impact of the trading and, prior to 2013, in those months when the end of the month fell on Friday, Saturday or Sunday, the overnight return from the month end close to the open on the next trading day. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance_disclosure for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
Sabtu, 11 Januari 2025
Best Way to Make Money on Earnings Surprises
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