Why Investors Need to Take Advantage of These 2 Auto, Tires and Trucks Stocks Now

Zacks highlights its Earnings ESP (Expected Surprise Prediction) tool, which forecasts earnings surprises by comparing the most accurate analyst estimate to the consensus. When paired with a Zacks Rank of #3 (Hold) or stronger, this system has historically predicted positive earnings surprises 70% of the time and generated an average annual return of 28% over a 10-year backtest. Allison Transmission (ALSN) and Cummins (CMI) are presented as current examples with positive ESPs, suggesting potential earnings beats in their upcoming reports.

Analysis

The analysis focuses on the Zacks Expected Surprise Prediction (ESP) model, a quantitative tool designed to identify companies likely to beat earnings estimates. The methodology's core premise is that the most recent analyst revisions, captured in the 'Most Accurate Estimate', provide a more predictive signal than the broader consensus. According to the provided 10-year backtest, combining a positive ESP with a Zacks Rank of #3 (Hold) or better has historically resulted in a positive earnings surprise 70% of the time, generating average annual returns of approximately 28%. The article highlights two specific companies in the Auto, Tires and Trucks sector meeting these criteria. Allison Transmission (ALSN), with a Zacks Rank #3 (Hold), shows a positive Earnings ESP of +1.2%, based on a Most Accurate Estimate of $2.02 versus a consensus of $2.00 ahead of its October 23, 2024 report. Similarly, Cummins (CMI), also a Zacks Rank #3 (Hold), displays a more pronounced positive ESP of +3.91%, with its Most Accurate Estimate at $5.08 against a $4.89 consensus for its November 5, 2024 earnings. The positive ESP for both entities suggests an elevated probability of an earnings beat in their upcoming quarterly reports.

Key Decisions for Investors

• Investors employing event-driven strategies may consider the positive ESP signals for Allison Transmission (ALSN) and Cummins (CMI) as potential indicators for a near-term catalyst around their upcoming earnings announcements.
• Note that while both companies are flagged, Cummins exhibits a stronger quantitative signal with a +3.91% ESP compared to Allison's +1.2%, which could imply a higher probability or magnitude of a potential earnings beat according to this specific model.
• It is crucial to balance the short-term positive signal with the fact that both ALSN and CMI currently hold a Zacks Rank #3 (Hold), which suggests they are expected to perform in-line with the broader market, indicating this catalyst may be more suited for a tactical trade than a long-term strategic shift.