How to pick stocks based on earnings surprises
The Santa Cruz Sentinel has a article by Harry Domash highlighting the earnings strategy:
Here's a stock-picking strategy that doesn't require scrutinizing financial statements or checking price/earnings ratios, or even worrying about how economic ups and downs might affect a company's outlook.
Instead, it's based on picking stocks based on earnings surprises, one of the few reliable predictors of future stock prices.
An earnings surprise is the difference between a company's reported earnings and the number that stock analysts were expecting. All else equal, positive surprises reported earnings beat forecasts drives share prices up, often for extended periods. Conversely, negative surprises earnings below forecasts drive share prices down.
Hedge funds, said to rely heavily on surprises to power their computer-driven stock selection strategies, keep the details secret. But that's not the case for Pradeep Bonde, who publishes a blog called StockBee at StockBee.blogspot.com. Bonde follows a strategy based on tracking surprises that, reportedly, has been producing high double-digit annual returns for several years.
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8 comments:
what do you think of zacks.com and their earning momentum strategy?
It is a good starting point for learning.
I would like to comment about earning suprises I do not believe that its possible to make accurate earnings predictions.
You don't need to make earnings prediction. Earnings surprise is actual earnings vs analyst consensus of earnings. For example analyst expect XYZ to make 10 cents but the actual earnings are 40 cents then that company has 30 cents earnings surprise.
Do you think this strategy still works? Nowadays, surprise positive earnings don't seem to necessary work. Some simply result in a 1day jump in price then fade. Others will gap up in price but fall during the day and subsequent days will simply consolidate at that level.
It still works
Hi,
Do you need the same pattern to trade earning suprises like momentum burst,or you use only the 4% gain rule, and don't care about 3-20 day correction, low range days, etc. before breakout?
yes same thing should be present in earnings b/o
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