This may be one of the biggest Earnings seasons in a long time.

Finally, a pause in CI's red-hot numbers has given investors a sense of security. But you and I both know that it's only a matter of time before the Federal Reserve throws a bucket of cold water on our parade. The Fed has pledged to not only continue to raise rates, but is also determined to keep rates higher “for an extended period.”

It's also a New Year, and with it, new earning opportunities. Who would have known going into this year that energy stocks would perform so well while the tech titans would crash? We will have to read the tea leaves early in the season to find out where the opportunity is.

This also exposes investors to great risk this earnings season. Will the aggressive attitude of central banks around the world continue to stifle the market? Or will inflation continue to falter a bit, giving investors hope that the end will finally come and growth can return without the looming specter of inflation?

Most of the major market averages have bounced off the lows. However, the overhead resistance is beginning to rear its head. Can the market pull out these long-term moving averages in the face of such a hawkish Federal Reserve and reduced growth prospects?

There are a litany of reasons for investors to worry. But, there is a silver lining to this cloud. If corporate earnings are better than expected, then it should act as a catalyst, driving shares from yearly lows. On the other hand, if earnings fall short, stocks are likely to see an even deeper correction.

That is the story of the market in general. As for individual stocks, there will be big winners and losers depending on the strength of their reporting. This brings to mind one of the most confusing things about earnings seasons:

Why do some stocks soar on a positive earnings surprise while others fall off a cliff?

In this article, we are going to discuss this topic so that we can try to understand it better. Even better, I'm going to share with you two ways to take advantage of surprises this earnings season. More on that later.

3 Reasons Stocks May Fall After a Positive Earnings Surprise

1) Estimates vs. Expectations: The standard definition of an earnings surprise is when actual earnings are higher than earnings estimates. But those estimates are “published” brokerage analyst numbers. Very often, investors tend to develop their own unique set of expectations that can differ greatly from those of Wall Street analysts. If there is too much optimism ahead of release, then actual earnings will need to be impressive to appease inflated investor expectations. This is the most common reason why some stocks fall after a “possible” outweigh profits.

2) Quality of earnings: The highest quality earnings come from having strong revenue growth. This means that the company's products or services are in high demand and should remain so in the future. However, these days, a large part of the profits that are reported are generated from cost cutting and other “accounting tricks.” The problem with this is that the benefits of these moves don't last. When the market perceives that gains are unsustainable, no matter how strong the pace, the stock will most likely fall.

3) Advance Guide: Plain and simple, when you buy a stock, you are taking an ownership interest. And what business owners care about is the future profit stream. So if a company beats earnings for the quarter just reported, but warns that future quarters will see lower earnings, then those stocks will go down… and go down fast.

2 ways to make money with profit surprises

So now that we've outlined the things that can go wrong after an earnings surprise, let's change the subject and talk about something even more important: how to profit from earnings surprises. Here are two ways to do it.

More . . .

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Buy These Stocks BEFORE They Report Earnings

In the next three weeks, 1,133 companies will report earnings.¹ What if you could know ahead of time which of them would surprise Wall Street by beating earnings expectations and raising prices?

Now you can.

Zacks' proprietary “ESP” formula predicts positive earnings surprises with an unthinkable 81.39% accuracy.¹ Investors who follow his picks have seen double-digit gains in a matter of days.

What actions is the system selecting today? Find out before the doors are closed to new investors in midnight on Monday, January 16.

See surprise actions now >>

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Good way: Buy shares of any company that had an earnings surprise and went up the day after the news. These actions experience what scholars call the “Subsequent Earnings Announcement Deviation”. Studies clearly show that these stocks typically outperform the market over the next 9 months. Rather, you should sell any stocks in your portfolio that don't hit their earnings numbers, as they are likely to underperform the market for the next few quarters. The downside to this approach is that there are literally thousands of stocks to choose from each quarter.

Better way: Find stocks where earnings “whispers” let him know that a big surprise is coming. Buy the stock shortly before the announcement and enjoy quick gains of 10%, 15% and even 20% when the earnings surprise is officially reported.

I know what you're thinking. There are no Magic 8-balls for the stock market, so how can this be possible? But don't worry, this is not a magic show. It is pure science.

The concept of finding a profitable source of whispers of profit has long been the Holy Grail of stock investing. Many experts have tried and failed to get this to work. In fact, we had been researching this for countless years.

We found early indications that the identified stocks are more likely to surprise, but not necessarily rise in price. It wasn't until the summer of 2010 that we discovered the right combination of elements. Since refinements were made in 2014, the system has correctly called surprises POSITIVE a whopping 81.39% of the time, with the vast majority accelerating the price.

The easy way to apply this breakthrough

Here's the challenge: In every earnings season, including the current one, there are hundreds of stocks that are likely to surprise positives.

That's why our Zacks research team put so much effort into creating a special strategy that uses additional filters to narrow down listings. Spot rare companies that are more likely to outperform and drive up the price.

This drives the portfolio I manage called Zack's Surprise Trader.

I can't share all the details of the secret formula with you, but our system is based on two underutilized signals from the brokerage analyst community. These two whispers are then layered with other time-tested items, such as Zacks Rank and Zacks Industry Rank, to find only the best stocks…in the best industries…with the best chances of outperforming gains and rising rapidly. in price.

If you want our accurate whispering trading signals in the heart of this earnings season, I encourage you to look inside our Trader Surprise portfolio as soon as possible.

Now is the best time to do it. Out of 1,133 companies scheduled to report earnings in the next three weeks, I've noticed a small handful of standout companies that are forecast to beat expectations when their earnings reports are released.

Surprise New Stock to Post After Market Opens Tuesday Morning

Check out our live recommendations right now and be the first to see the one I'll add on Monday. You can take advantage of buying waves even before a company reports earnings.

Don't miss your chance to beat Wall Street and take full advantage of potential double-digit price increases. Our signals predict big positive surprises and have been remarkably right 81.39% of the time!

Even in 2022, the most bearish year since 2008, surprise trader he achieved 21 double-digit quick wins. For example, +62.5%, +24.3%, +59.8%Y +19.5% in just 10 days.²

Bonus report: Another reason to look into this right away is that you are also invited to download our just released “Early Warning Alert” report. reveals it Stocks to sell BEFORE they report earnings in the coming weeks. Our strategy works both ways, and you can use this report to avoid companies that are more likely to report negative surprises for January 17-27.

But don't delay. Our “surprise” referrals are generally closed to the public. Today the wallet is open again, but your opportunity to gain access ends on midnight on Monday, January 16.

see our surprise trader actions and “Early Warning Alert” right now >>

All the best,

dave

Dave Bartosiak is Zacks' resident earnings surprise expert. He selects stocks and provides daily commentary for our Surprise Trader's Wallet.

¹ As of 9/1/2023

² The results listed above are not (or may not be) representative of the performance of all selections made by the editors of the Zacks Investment Research newsletter and may represent the partial closing of a position.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.