Here’s how investors can find strong consumer discretionary stocks with Zacks’ ESP filter
Wall Street closely monitors a company’s quarterly report to understand as much as possible about its recent performance and what to expect going forward. Of course, one number often stands out among the rest: earnings.
The profit figure itself is key, of course, but a beat or failure 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 go up and vice versa.
Now that we know how big profits and profit surprises are, it’s time to show investors how to take advantage of these events to increase their returns using the Zacks Earnings ESP filter.
Zacks Earnings ESP Explained
Zacks ‘expected surprise prediction, or ESP, works by locking into the most recent revisions of analysts’ earnings, as they may be more accurate than estimates weeks, or even months, before the actual release date. The reasoning is quite simple: analysts who provide earnings estimates closer to the report are likely to have more information.
The core of the ESP model compares the most accurate estimate to the Zacks consensus estimate, where the resulting percentage difference between the two is equal to the expected surprise prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that look set to beat their next consensus estimate, which will hopefully help push the share price up.
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 more importantly, using these metrics produced annual returns of 28.3% on average, according to our 10-year backtest.
Stocks ranked # 3 (hold), which are most 60% hedged stocks, are expected to perform in line with the broader market. But stocks that fall in the # 2 (Buy) and # 1 (Strong Buy) rankings, or the top 15% and top 5% of stocks, respectively, are expected to outperform the market. Strong Buy stocks are expected to outperform more than any other ranking.
Should you consider OneWater Marine?
The last thing we’ll do today, now that we’ve got a handle on ESP and how powerful it can be, is take a quick look at a qualifying stock. OneWater Marine (ONEW) currently holds a number 3 (Hold) and its most accurate estimate is $ 1.19 per share 30 days of the release of its results on November 18, 2021.
The ESP of OneWater Marine’s earnings is 0.42%, which, as explained above, is calculated by taking the percentage difference between the most accurate estimate of $ 1.19 and the estimate of Zacks consensus of $ 1.18. ONEW is also part of a large group of stocks that show positive ESP. All of these qualifying titles can be filtered by ESP, Zacks Rank,% Surprise (Last Quarter) and Reporting Date.
Now that you know how to use Zacks’ Earnings ESP to your advantage, be sure to check out the Earnings ESP homepage for even more winning strategies to build a winning portfolio.
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OneWater Marine Inc. (ONEW): Free Stock Analysis Report
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