Best Earnings ESP stocks for August 20th

TOL | CSCO | RY | CIEN

We are nearing the end of Q2 earnings season; 95% of the S&P 500 has already reported and the report card looks like a C-. Growth at the earnings per share level is a little better than 4% compared to Q2 2011; if you were to back out the Finance sector, overall earnings are down year over year.Year over year revenue growth is non-existent, which normally would stifle stock prices, but the market has shrugged off the lackluster season and it currently hovering around multi-year highs.Many Wall Street pros are not buying this recent rally, but perception is reality and the reality is that there is still money to be made. The biggest winners have been those companies exceeding current quarter estimates and at least maintaining their forward guidance.

This week’s three stocks are spread around different sectors, but all those sectors have seen strength this past season.

About Zacks Earnings ESP

Earnings ESP is Zacks’ proprietary methodology for determining which stocks have the best chance to surprise with their next earnings announcement. The Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Consensus.

The Zacks ESP helps predict earnings surprises to the upside and downside; the greater the ESP (positive or negative) the greater the likelihood for a surprise.

I use ESP to help quantify the conviction of the analysts for a surprise and stack the odds in my favor when I combine it with other measurements and statistics.

This can work for bullish potential surprises (positive ESP) as well as bearish surprises (negative ESP).

Bullish ESP Stocks
Toll Brothers (TOL – Snapshot Report) is a Zacks Rank 2 stock with a positive earnings ESP of 29.41% for the current quarter; the Zacks Consensus is for a profit of 17 cents. Homebuilders have been strong recently and for good reason; New Home Sales, Building Permits and Housing Starts have been on the rise and home prices are stabilizing in many areas.

While the stock is up over 100% from its 2012 lows, there might still be some upside in this east coast homebuilder and today’s homebuilder downgrade may provide a better entry.

– Toll Brothers report earnings on August 22nd

Ciena Corp (CIEN – Analyst Report) is a Zacks Rank 3 stock with a positive earnings ESP of 15.39% for the current quarter; the Zacks Consensus is for a loss of 13 cents. Cisco (CSCO –Analyst Report) posted strong gains this quarter and offered some very bullish guidance for the future.

The networking companies have fared relatively well in recent months and Ciena did beat estimates last quarter. There is no doubt that the company faces some challenges in the near term; but if they can harness their cloud solutions potential upside and keep their core strong, shares could see a boost.

Shares have recently exploded to the upside during the most recent rally to over $17.

– Ciena report earnings on August 30th.

Royal Bank of Canada (RY – Snapshot Report) is a Zacks Rank 2 stock with a positive earnings ESP of 2.6% for the current quarter. The Zacks consensus estimate is for Q2 EPS of $1.17, with the most accurate estimate at $1.20. As stated earlier, financial stocks have been the big winners this earnings season. While Royal Bank of Canada may have the bulk of its exposure to our neighbors to the north, that may not be such a bad thing.

Canada, unlike the U.S. has been experiencing more strength in housing and in overall wealth driven mostly by their natural resources. The Canadian Government along with banks like Royal Bank of Canada have been taking steps to cool the housing market to prevent a U.S. style bubble and it appears to be working.

RY recently upped their short term mortgage rates and if the Canadian Dollar is any sign of strength, they are looking better off than the U.S. as the “Looney” is trading at two year highs against the Greenback.

– Royal Bank of Canada reports earnings on August 30th.

Take Earnings a Step Further
If the ESP method sounds intriguing to you for improving your portfolio performance, you should check out Zacks Whisper Trader.

Not only do I utilize Earnings ESP but I also factor in several critical data sets to create the “secret sauce” I use to achieve almost 80% accuracy in identifying positive earnings surprises … before they’re reported.

Senior Equities Strategist, Jared Levy, is the editor of Whisper Trader and can show you how to use the power of Zacks Earnings ESP and earnings surprises for timely, steady gains.