3 Stocks to Beat on Earnings Estimates as GDP Improves

Zacks

The “third and final” data for real gross domestic product (GDP) has been released and it shows that the economy isn’t in such a bad shape as was perceived when the “second estimate” was declared by the Commerce Department. The final figure unveils that the economy did halt, contracting 0.2% in the first quarter of 2015, but fared better than the 0.7% decline projected earlier and the 2.1% fall witnessed in the first quarter of 2014.

The positive revision in GDP numbers reflects better consumer spending (+2.1% vs. +1.8%), increase in investment in intellectual property products (+4.9% vs. +3.6%) and lower decline in non-residential fixed investments (-2% vs. -2.8%). However, the quarter did grapple with harsh weather, West Coast port unrest and weakness in the energy sector. Experts believe that with temporary factors such as inclement weather and port disruption taking a backseat, the recovery of the economy looks convincing, although it may have to endure a stronger dollar for some time.

Gradual recovery in the housing market, a strengthening manufacturing sector, an improving labor market and lower gasoline prices are favoring the economy and boosting consumers’ purchasing power. The economy is gaining momentum, and this is quite evident from the May retail sales data released by the Commerce Department. Retail sales increased 1.2%, significantly higher than the April’s revised gain of 0.2%. Moreover, consumer confidence – a key determinant of financial health – is also improving, making the future look brighter.

With the economy gaining traction, it is time to rejuvenate your portfolio once again. Nonetheless, the unpredictability which is so characteristic of the market continues to haunt the mind of every investor. But you can be a front-runner and winner by using Zacks’ formula of a profitable mix.

Profitable Mix: Favorable Zacks Rank + Positive Earnings ESP + Long-term EPS Growth Rate of 10% or more

A favorable Zacks Rank indicates positive estimate revisions by analysts who are optimistic on the future performance of stocks. Moreover, Earnings ESP is our proprietary methodology for identifying stocks with the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

For investors seeking to apply this strategy to their portfolio, we have highlighted three stocks that possess a profitable mix. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. It might be a good idea to add market outperformers in the present investment landscape.

3 Prominent Picks

BJ's Restaurants, Inc. BJRI is a Zacks Rank #2 (Buy) stock with an Earnings ESP of +2.56%. The current Zacks Consensus Estimate for the second quarter of 2015 stands at 39 cents a share, portraying 29% growth from the prior-year quarter. This Huntington Beach, CA-based casual dining restaurant operator, registered an average positive earnings surprise of 44.5% over the trailing four quarters, and has a long-term earnings growth rate of 20.2%. The company is expected to report results on Jul 23.

Apple Inc. AAPL is a Zacks Rank #2 stock with an Earnings ESP of +7.91%. The current Zacks Consensus Estimate for third-quarter fiscal 2015 stands at $1.77 per share, reflecting 38.1% growth from the prior-year period. This designer, manufacturer, and marketer of mobile communication and media devices, personal computers and watches, registered an average positive earnings surprise of 9.6% over the trailing four quarters, and has a long-term earnings growth rate of 14.2%. This Cupertino, CA-based company is expected to report results on Jul 28.

Global Payments Inc. GPN, which provides electronic payments transaction processing services, is a Zacks Rank #2 stock with an Earnings ESP of +1.70%. The current Zacks Consensus Estimate for fourth-quarter fiscal 2015 is $1.18 per share, highlighting an increase of 8.4%. This Atlanta, GA-based company delivered an average positive earnings surprise of 4.1% over the trailing four quarters, and has a long-term earnings growth rate of 12.9%. The company is expected to report results on Jul 28.

Bottom Line

Who doesn’t want a portfolio of stocks that has the potential to outperform and beat earnings estimates? You can use the Zacks Stock Screener to find other stocks with this winning combination. Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 or #2, which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions. A sturdy portfolio always gives favorable returns.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research

Be the first to comment

Leave a Reply