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 October and with earnings season kicking into full gear there are few things that can move a stock faster, up or down, than an earnings announcement.
This is especially true now given the stock market is surpassing all-time highs and trading at the high-end of historical valuation norms. 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 with you 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 . . .
Sunday through Friday, 861 companies will report earnings, but only a few are coiled to catch Wall Street off guard and pop in price. What if you could buy the best of these surprise stocks BEFORE their reports are released?
Right now, you can take advantage of a Zacks research breakthrough that predicts positive earnings surprises with documented 82.49% accuracy. This can lead to double-digit gains in as little as a day or two.
Important: Signals are flashing for a few special stocks. Your chance to access them closes midnight Sunday, October 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?
We can't share all the details of our proprietary whisper formula with you, but our system relies on two very under-utilized 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 I invite you to check out Zacks Surprise Trader.
This is the time to do it. We typically lock onto about 30 special stocks every earnings season. Right now, "Positive Surprise" signals are flashing big-time for a few selected companies scheduled to report earnings in the days ahead. We just posted 3 of these surprise stocks and plan to reveal 2 more after the opening bell on Monday. And there will be more to come.
Be advised that we can't let too many share these recommendations, and must close the door to new investors this Sunday, October 22, at midnight.
Don't miss this chance to beat Wall Street to the punch and make the most of these potential price pops. Our signals predict big positive surprises and they have been right 82.49% of the time.
Another reason to look into this right away is that you are also invited to download our just-released "Early Warning Alert" report free. It reveals 89 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 negative surprises from October 23 – 27.
Wishing you great financial success,
Dave Bartosiak is Zacks' resident earnings surprise and momentum expert. He is extremely proud to share with you our historic earnings prediction breakthrough through the Zacks Surprise Trader.
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 SPDR-SP 500 TR (SPY): ETF Research Reports To read this article on Zacks.com click here.