Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.
Should You Consider MSCI?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. MSCI (MSCI) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $3.97 a share 19 days away from its upcoming earnings release on January 29, 2025.
MSCI has an Earnings ESP figure of +0.18%, which, as explained above, is calculated by taking the percentage difference between the $3.97 Most Accurate Estimate and the Zacks Consensus Estimate of $3.96. MSCI is one of a large database of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
MSCI is just one of a large group of Finance stocks with a positive ESP figure. MetLife (MET) is another qualifying stock you may want to consider.
MetLife, which is readying to report earnings on January 29, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.16 a share, and MET is 19 days out from its next earnings report.
MetLife's Earnings ESP figure currently stands at +0.92% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.14.
MSCI and MET's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>
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Free: See Our Top Stock And 4 Runners UpMSCI Inc (MSCI) : Free Stock Analysis Report
MetLife, Inc. (MET) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
