Bulletin
Investor Alert

New York Markets Close in:

MarketWatch Premium Archives | Email alerts

June 12, 2021, 11:14 a.m. EDT

These 8 ‘earnings-surprise’ stocks are most compelling for investors right now

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    S&P 500 Index (SPX)
  • X
    Leggett & Platt Inc. (LEG)
  • X
    Walt Disney Co. (DIS)

or Cancel Already have a watchlist? Log In

By Mark Hulbert

The next several months may be one of the best times in years to pursue earnings-surprise strategies.

I’m referring to strategies that favor companies with a big jump in Wall Street analysts’ consensus about the stocks’ earnings per share. Historically, the stocks of such companies have proceeded to outperform those of companies with negative surprises — those that report results that are worse than expected.

The reason earnings-surprise strategies may perform particularly well in coming months traces to our economy emerging from last year’s pandemic-induced recession and lockdowns. Considerable uncertainty exists about how quickly various firms and industries will return to normal — and even what their new normal looks like.

That creates more than the usual opportunity for large earnings surprises, since that uncertainty means Wall Street consensus is more likely than in normal times to be wrong.

The Achilles’ heel of earnings-surprise strategies is that companies are fully aware that Wall Street typically reacts positively to a big surprise. As a result, it’s not uncommon for them to engage in financial engineering to manufacture an apparent earnings surprise.

As investors catch on to the artificial nature of these surprises, these companies’ stocks correct. For this and other reasons, mechanical earnings-surprise strategies have not worked as well in recent years as they did in other decades ( as I discussed in a January column ).

To make the most of the earnings-surprise opportunity that presents itself as the economy emerges from the pandemic, therefore, you need to eliminate from consideration surprises due to financial engineering. Look out for any examples of creative accounting, such as a heavy reliance on accruals and one-time items to boost income, the use of non-standard accounting, and so forth.

Newsletters’ recommendations

To be sure, this requires a considerable amount of digging through financial reports, leading some of you to shy away from even considering earnings-surprise strategies. There may be an easier way, however: Rely on the top-performing newsletters to do the work for you. That’s what I propose in this column, my regular monthly report on the stocks and funds most popular among monitored investment newsletters.

My proposed approach: Eliminate from consideration any positive earnings-surprise stocks that are not also recommended by the top-performing newsletters. For the list below, I started with the 50 stocks within the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.35% with the largest positive earnings surprise in percentage terms over the last quarter, according to FactSet. I narrowed the list further to include just stocks that are recommended by at least two of those top-performing advisers.

Eight stocks survived this winnowing process. They are listed below in descending order of the number of newsletters currently recommending them for purchase:

  • Leggett & Platt /zigman2/quotes/206009340/composite LEG -1.21%

  • Walt Disney /zigman2/quotes/203410047/composite DIS -0.39%

  • Alphabet /zigman2/quotes/202490156/composite GOOGL -0.33%

  • Amazon /zigman2/quotes/210331248/composite AMZN -0.25%

  • Comerica /zigman2/quotes/207245846/composite CMA -0.78%

  • JPMorgan Chase /zigman2/quotes/205971034/composite JPM -0.76%

  • PNC Financial Services /zigman2/quotes/203416310/composite PNC -0.34%

  • Target /zigman2/quotes/207799045/composite TGT -0.44%

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com .

/zigman2/quotes/210599714/realtime
US : S&P US
4,407.75
-15.40 -0.35%
Volume: 1.85B
Aug. 4, 2021 3:40p
loading...
/zigman2/quotes/206009340/composite
US : U.S.: NYSE
$ 48.22
-0.59 -1.21%
Volume: 440,646
Aug. 4, 2021 3:40p
P/E Ratio
16.18
Dividend Yield
3.47%
Market Cap
$6.51 billion
Rev. per Employee
$209,868
loading...
/zigman2/quotes/203410047/composite
US : U.S.: NYSE
$ 172.31
-0.68 -0.39%
Volume: 4.25M
Aug. 4, 2021 3:40p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$314.31 billion
Rev. per Employee
$320,813
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 2,703.63
-8.97 -0.33%
Volume: 720,753
Aug. 4, 2021 3:40p
P/E Ratio
29.32
Dividend Yield
N/A
Market Cap
$1812.80 billion
Rev. per Employee
$1.35M
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,357.97
-8.27 -0.25%
Volume: 1.81M
Aug. 4, 2021 3:40p
P/E Ratio
58.53
Dividend Yield
N/A
Market Cap
$1704.80 billion
Rev. per Employee
$297,430
loading...
/zigman2/quotes/207245846/composite
US : U.S.: NYSE
$ 68.83
-0.54 -0.78%
Volume: 714,852
Aug. 4, 2021 3:40p
P/E Ratio
8.96
Dividend Yield
3.94%
Market Cap
$9.29 billion
Rev. per Employee
$387,421
loading...
/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 151.73
-1.16 -0.76%
Volume: 7.44M
Aug. 4, 2021 3:40p
P/E Ratio
10.14
Dividend Yield
2.37%
Market Cap
$462.85 billion
Rev. per Employee
$492,730
loading...
/zigman2/quotes/203416310/composite
US : U.S.: NYSE
$ 185.71
-0.63 -0.34%
Volume: 641,121
Aug. 4, 2021 3:40p
P/E Ratio
14.09
Dividend Yield
2.69%
Market Cap
$79.19 billion
Rev. per Employee
$355,737
loading...
/zigman2/quotes/207799045/composite
US : U.S.: NYSE
$ 261.04
-1.16 -0.44%
Volume: 1.87M
Aug. 4, 2021 3:40p
P/E Ratio
21.30
Dividend Yield
1.38%
Market Cap
$129.72 billion
Rev. per Employee
$228,756
loading...

This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.