How to Find Strong Auto, Tires and Trucks Stocks Slated for Positive Earnings Surprises

Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

The Zacks Earnings ESP, Explained

The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.

Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.

Should You Consider Oshkosh?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Oshkosh OSK earns a #3 (Hold) right now and its Most Accurate Estimate sits at $3.06 a share, just nine days from its upcoming earnings release on July 31, 2024.

OSK has an Earnings ESP figure of +1.97%, which, as explained above, is calculated by taking the percentage difference between the $3.06 Most Accurate Estimate and the Zacks Consensus Estimate of $3. Oshkosh is one of a large database of stocks with positive ESPs.

OSK is one of just a large database of Auto, Tires and Trucks stocks with positive ESPs. Another solid-looking stock is Cummins CMI.

Cummins, which is readying to report earnings on August 1, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $4.87 a share, and CMI is 10 days out from its next earnings report.

For Cummins, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.85 is +0.53%.

OSK and CMI's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

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