For Immediate Release
Chicago, IL – May 03, 2017 - Stocks in this week’s article include Sonus Networks Inc. (NASDAQ: SONS – Free Report ), CNH Industrial N.V. (NYSE: CNHI – Free Report ), WellCare Health Plans Inc. (NYSE: WCG – Free Report ), Exelixis Inc. (NASDAQ: EXEL – Free Report ) and Best Buy Co (NYSE:BBY). Inc. (NYSE: BBY – Free Report ).
Screen of the Week of Zacks Investment Research:
Play Potential Earnings Beats with These 5 Top-Ranked Stocks
It is a common practice to scan stocks that can beat market expectation ahead of an earnings release. This is because investors always try to position themselves ahead of time and look to tap stocks that are high-quality in nature.
Why Is a Positive Earnings Surprise So Important?
Historically, stocks of companies with solid quarterly earnings (on a nominal basis) tank if they miss or merely meet market expectations. After all, a 20% earnings rise (though apparently looks good) doesn’t tell you if earnings growth has been exhibiting a decelerating trend.
Also, seasonal fluctuations come into play sometimes. If a company’s Q1 is seasonally weak and Q4 is strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company.
On the other hand, after much brainstorming, analyzing companies’ financials and initiatives, Wall Street analysts project earnings of companies. They in fact club their insights and a company’s guidance when coming to an earnings estimate.
Thus, outperforming that estimate is almost equivalent to beating the company’s own expectation as well as the market perception. And if the margin of earnings surprise is big, it typically drives the stock higher right after the release. Thus, more than anything else, an earnings surprise drives the market post release.
How to Find Those Potential Outperformers?
Now, finding out stocks that have the possibility to beat on the bottom line may be investors’ dream but not an easy job. One way to do this is to look at the earnings surprise history of the company.
A dependable track in this regard generally acts as a catalyst in sending a stock higher. It indicates the company’s ability to surpass estimates. And investors generally believe that the company will apply the same secret sauce to execute yet another earning beat in its next release.
The Winning Strategy
In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the following as our primary screening parameters.
Last EPS Surprise greater than or equal to 10%: Stocks delivering positive surprise in the last quarter tend to surprise again.
Average EPS Surprise in the last four quarters greater than 20%: We lifted the bar for outperformance slightly higher by setting the average EPS surprise for the last four quarters at 20%.
Average EPS Surprise in the last two quarters greater than 20%: This points to a more consistent surprise history and makes the case for another surprise even stronger.
In addition, we place a few other criteria that push up the chance of a surprise.
Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) can get through.
Earnings ESP greater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 (Hold) for an earnings beat to happen, as per our proven model.
In order to zero in on those that have long-term growth potential and high trading liquidity we have added the following parameters too:
Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth exhibits the stock’s long-term growth prospects.
Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity.
A handful of criteria has narrowed down the universe from over 7,700 stocks to around 7.
Here are five out of the seven stocks:
Sonus Networks Inc. (NASDAQ:SONS – Free Report ): This company is a provider of voice infrastructure products for the new public network. Sonus has a Zacks Rank #2. The Zacks Industry Rank of the stock is in the top 36%, at the time of writing.
CNH Industrial N.V. (NYSE:CNHI – Free Report ): This Zacks Rank #2 company designs, produces and sells trucks, commercial vehicles, buses and special vehicles. The Zacks Industry Rank of the stock is in the top 36%.
WellCare Health Plans Inc. (NYSE:WCG – Free Report ): This is a provider of managed care services targeted exclusively at government-sponsored healthcare programs, focusing on Medicaid and Medicare. The Zacks Industry Rank of the stock is in the top 39%. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here .
Exelixis Inc. (NASDAQ:EXEL – Free Report ): This is a biopharmaceutical company sporting a Zacks Rank #1. The Zacks Industry Rank of the stock is in the top 38%.
Best Buy Co. Inc. (NYSE:BBY – Free Report ): This leading retailer carries a Zacks Rank #2. The Zacks Industry Rank of the stock is in the top 19%.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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Sonus Networks, Inc. (SONS): Free Stock Analysis Report
CNH Industrial N.V. (CNHI): Free Stock Analysis Report
WellCare Health Plans, Inc. (WCG): Free Stock Analysis Report
Exelixis, Inc. (EXEL): Free Stock Analysis Report
Best Buy Co., Inc. (BBY): Free Stock Analysis Report
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