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.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Pan American Silver?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Pan American Silver (PAAS) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.37 a share, just nine days from its upcoming earnings release on February 19, 2025.
PAAS has an Earnings ESP figure of +0.54%, which, as explained above, is calculated by taking the percentage difference between the $0.37 Most Accurate Estimate and the Zacks Consensus Estimate of $0.36. Pan American Silver 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.
PAAS is just one of a large group of Basic Materials stocks with a positive ESP figure. Kinross Gold (KGC) is another qualifying stock you may want to consider.
Kinross Gold, which is readying to report earnings on February 12, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.25 a share, and KGC is two days out from its next earnings report.
Kinross Gold's Earnings ESP figure currently stands at +8.7% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.23.
PAAS and KGC's positive ESP metrics may signal 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 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 >>
Should You Invest in Pan American Silver Corp. (PAAS)?
Before you invest in Pan American Silver Corp. (PAAS), want to know the best stocks to buy for the next 30 days? Check out Zacks Investment Research for our free report on the 7 best stocks to buy.
Zacks Investment Research has been committed to providing investors with tools and independent research since 1978. For more than a quarter century, the Zacks Rank stock-rating system has more than doubled the S&P 500 with an average gain of +24.08% per year. (These returns cover a period from January 1, 1988 through May 6, 2024.)
Pan American Silver Corp. (PAAS) : Free Stock Analysis Report
Kinross Gold Corporation (KGC) : 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.
