How to Find Strong Basic Materials Stocks Slated for Positive Earnings Surprises

Zacks Investment Research highlights the Earnings ESP (Expected Surprise Prediction) as a tool for identifying potential earnings surprises, noting that stocks with a positive ESP and a Zacks Rank #3 (Hold) or better have historically produced positive surprises 70% of the time, yielding average annual returns of 28.3% over a 10-year backtest. The report specifically points to Nutrien (NTR), with a Zacks Rank #3 and an Earnings ESP of +1.88%, and Kinross Gold (KGC), with a Zacks Rank #2 (Buy) and an Earnings ESP of +27.66%, as companies that could potentially beat earnings expectations in their upcoming reports.

Analysis

The Zacks Earnings ESP (Expected Surprise Prediction) methodology leverages recent analyst estimate revisions to identify stocks with a higher probability of delivering earnings surprises. This approach is based on the premise that analysts revising estimates closer to an earnings release possess more current, potentially more accurate, information. The ESP is calculated as the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. According to Zacks' 10-year backtest, combining a positive Earnings ESP with a Zacks Rank #3 (Hold) or better has historically resulted in a positive earnings surprise 70% of the time, yielding average annual returns of 28.3%. The article highlights two specific Basic Materials stocks: Nutrien (NTR), currently holding a Zacks Rank #3, exhibits a positive Earnings ESP of +1.88% with its Most Accurate Estimate at $2.17 against a consensus of $2.13 ahead of its August 7, 2024 earnings. Kinross Gold (KGC), with a Zacks Rank #2 (Buy), shows a more pronounced positive Earnings ESP of +27.66%, derived from a Most Accurate Estimate of $0.15 versus a consensus of $0.12, for its earnings report expected on July 31, 2024. Both companies, due to their positive ESP figures, are presented as potentially poised to exceed earnings expectations.

Key Decisions for Investors

• Investors might consider utilizing the Zacks Earnings ESP filter as a supplementary tool to identify stocks with a higher statistical probability of positive earnings surprises, particularly those with a Zacks Rank #3 or better, given its reported historical success.
• Nutrien (NTR), with a +1.88% Earnings ESP and a Zacks #3 (Hold) rank, warrants monitoring for a potential modest earnings beat around its August 7, 2024, report, though its 'Hold' rating suggests market-perform expectations.
• Kinross Gold (KGC) presents a more compelling case for a potential earnings beat due to its Zacks #2 (Buy) rank and a significantly strong +27.66% Earnings ESP ahead of its July 31, 2024, earnings, meriting closer attention from investors seeking pre-earnings opportunities.
• While the Earnings ESP offers a quantitative approach to predicting earnings surprises, investors should remember that it is a predictive tool based on historical performance, and actual results may vary.