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.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these 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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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 Intel?

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. Intel (INTC) earns a #2 (Buy) right now and its Most Accurate Estimate sits at -$0.03 a share, just seven days from its upcoming earnings release on July 27, 2023.

Intel’s Earnings ESP sits at +19.64%, which, as explained above, is calculated by taking the percentage difference between the -$0.03 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.04. INTC is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they’ve reported.

INTC is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at Wix.com (WIX) as well.

Slated to report earnings on August 3, 2023, Wix.com holds a #3 (Hold) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $0.77 a share 14 days from its next quarterly update.

Wix.com’s Earnings ESP figure currently stands at +38.12% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.56.

INTC and WIX’s positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

Intel Corporation (INTC): Free Stock Analysis Report

Wix.com Ltd. (WIX): Free Stock Analysis Report

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This article originally appeared on Zacks

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