3 Secrets to Quick Profits this Earnings Season

[Zacks | Our Research. Your Success.] WeekendWisdom Tactics that Work in Good Markets and Bad [David Bartosiak - Editor] 3 Secrets to Quick Profits this Earnings Season By: David Bartosiak April 13, 2024 --------------------------------------------------------------- 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. Rather than a focus on profits, the broad stock market has been focused on inflation for the last several quarters. CPI reports, which were once nearly overlooked due to their boredom are now the hottest economic reports on Wall Street. This data is at the center of the Federal Reserve's decision making process. It is a major key to the question all of us are asking; when will rate cuts start? The A.I. boom has fueled tech giants higher and helped increase productivity in the digital realm. We are just scratching the surface of this ground-breaking technology. It's also made tech stocks red hot and helped fuel a run to all-time highs for tech stocks and the broad market. However, the risks are growing. Geopolitical risk with conflicts arising in the Middle East as well as the ever-looming threat of the Russian conflict sparking war with NATO are palpable. And not everything is hunky-dory in markets. As the mega caps of the Dow and the NASDAQ have pushed up dramatically to all-time highs, the small caps are lagging behind. It could be a situation where they play catch-up or it could be a high beta break to the downside that's a harbinger of the danger to come. With so much riding on this quarter's round of reports, one thing is evident: Nothing can move a stock faster, up or down, than an earnings announcement. This is especially true today with the stock market coming down from all-time highs and approaching key technical levels. Over the last quarter, Energy stocks have come back en vogue, with double digit returns while Basic Materials have struggled, giving back over 6%. Any stocks unfortunate enough to hiccup this earnings season, and not meet the lofty expectations of investors 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 secrets to profit from earnings announcements. (Hint: Be sure to read to the end as the 3rd strategy is by far the most profitable) Secret 1: Target 4 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. Continued . . . [Buy These Stocks BEFORE They Report Earnings]( Next week, 204 companies are set to report earnings. What if you could know in advance which few would shock Wall Street by beating earnings expectations and pop in price? Now you can. Zacks proprietary "ESP" formula predicts positive earnings surprises with unthinkable 82.35% accuracy. Of course, not all picks can be winners, but investors following its recommendations have seen double-digit gains in as little as 5 days. What stocks is the system picking today? Find out before doors close to new investors at midnight Sunday, April 14. [See Surprise Stocks Now »]( Secret 2: Stop the Bleeding This second secret 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. Secret 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 no analyst would increase estimates close to the date of the earnings report unless there was 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. The Easy Way to Apply These Secrets The problem is that in each earnings season, including now, there are hundreds of stocks that are likely to achieve positive surprises. That is why our Zacks research team created a special strategy that uses additional filters to narrow 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](. I can't share all the details of the secret formula with you, but our system relies on two 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... 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. Right now, "Positive Surprise" signals are flashing for 5 select companies that are reporting earnings starting this coming week. Here's the timeline: • Deadline to get into the portfolio is midnight Sunday, April 14. • 4 surprise stocks were recently added that have yet to report. • 1 more yet-to-report company will be posted Monday morning. So 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 82.35% of the time! Of course, we don't make money every time these signals pop up. But they have led us to many recent gains like +59.8%, +49.8%, 28.5%, and +46.6% in as little as 5 days.¹ Bonus: Another reason to look into this right away 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 April 16-26. [See our Surprise Trader stocks and "Early Warning Alert" now »]( Wishing you great financial success, Good Investing, [David Bartosiak - signature] Dave Dave Bartosiak is Zacks' resident earnings surprise expert. He selects stocks and delivers commentary for our [Surprise Trader portfolio](. 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. 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