Looking back at this time last year, we recall a frigid economy thanks to a severe winter. Customers were locked indoors and the stock market fell like the temperatures outside. But just like spring can’t be far behind if winter comes, the economy too gradually became cheerful and is now ready to steer the wheel. But what about the global economy that often follows the U.S. markets?
Although the U.S. economy looks quite stable, the year 2015 started on a cautious note with investors skeptical about tensions and turmoil overseas. This is because of a beleaguered Russian economy, a stagnating European financial system and the ambiguity in China that raised concerns in the big financial houses.
The Russian economy is marred by sliding oil prices, currency devaluation, the Ukrainian crisis and western sanctions, while the European economy crumbled due to its long-time sovereign debt crisis. Coming to China, the economy is stressed by a slump in real estate, heavy debt load across companies and government bodies, industrial overcapacity and high dependence on investment and exports. Quite clearly, the Chinese government’s attempts of a facelift by shifting to a consumption driven model are yet to payoff.
The International Monetary Fund (“IMF”) trimmed its global growth forecast to 3.5% for 2015 from 3.8%, while the World Bank lowered its projection for this year to 3% from 3.4%, as the sharp drop in oil prices failed to counter the all-pervasive softness. IMF also revised its forecast for 2016 to 3.7%, 30 basis points lower than what was projected before. Waning investments, sluggish trade and plummeting commodity prices compelled economists to adopt a conservative approach.
|
Economies (Growth Rate) |
2014 |
2015 Projection |
|
World |
3.3% |
3.5% |
|
China |
7.4% |
6.8% |
|
Nigeria |
6.1% |
4.8% |
|
U.S. |
2.4% |
3.6% |
|
U.K. |
2.6% |
2.7% |
|
Russia |
0.6% |
-3.0% |
|
Euro area |
0.8% |
1.2% |
|
Source: IMF |
Well, it is the demand of time that policy makers and analysts sit together and chalk out major monetary and structural reforms to revive the dwindling global economy. It is highly anticipated that the European Central Bank will unveil a quantitative easing program today to stimulate growth and tackle deflation, despite German opposition. Such monetary stimulus has already been tried and tested by Bank of Japan, Bank of England and the U.S. Federal Reserve to fight financial turmoil.
It is quite apparent that the ongoing earnings season is characterized by a number of events. On the one hand, plunging oil prices and economic growth on the domestic turf raised confidence, but on the other, overseas political and economic woes derailed the same, thus leaving investors perplexed.
Here, the Zacks formula of a profitable mix comes into play, helping investors to identify stocks with the potential to be market winners. This increases the chance of gaining higher returns even when market conditions are not congenial.
Profitable Mix: Top Zacks Rank + Positive Earnings ESP + Long-term EPS Growth Rate of above 10%
A favorable rank indicates positive estimate revisions by analysts optimistic on the future performance of companies. Moreover, Earnings ESP is our proprietary methodology for identifying stocks that have 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 3 stocks that may stand out this earnings season. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Prominent Picks
O'Reilly Automotive Inc. (ORLY) is a Zacks Rank #1 (Strong Buy) stock with an Earnings ESP of +2.40%. The current Zacks Consensus Estimate for the fourth quarter of 2014 is $1.67 per share, portraying 19.2% growth from the prior-year period.
This Springfield, MO-based retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the U.S., registered an average positive earnings surprise of 4.2% over the trailing four quarters, and has a long-term earnings growth rate of 15.9%. The company is slated to report on Feb 4, 2015.
Expedia Inc. (EXPE) is a Zacks Rank #1 stock having an Earnings ESP of +3.49%. The current Zacks Consensus Estimate for fourth-quarter 2014 is 86 cents a share, portraying an increase of 6.8% from the prior-year period.
This Bellevue, WA-based online travel company in the United States and internationally, registered an average positive earnings surprise of 14.5% over the trailing four quarters, and has a long-term earnings growth rate of 14.9%. The company is slated to report on Feb 5, 2015.
Air Lease Corporation (AL) is a Zacks Rank #1 stock having an Earnings ESP of +8.20%. The current Zacks Consensus Estimate for fourth-quarter 2014 is 61 cents a share, portraying 3% growth from the prior-year period.
This Los Angeles-based company is engaged in the purchase and leasing of commercial jet transport aircraft to airlines globally. The company has registered an average positive earnings surprise of 11.5% over the trailing four quarters and has a long-term earnings growth rate of 20.8%. The company is scheduled to report on Feb 26, 2015.
Bottom Line
Who doesn’t want a portfolio of stocks that have the potential to outperform and beat earnings estimates? You can use Zacks Stock Screener to find other stocks with this winning combination.
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