The Cockroach Effect
They call this the cockroach effect because once you’ve seen one cockroach, you’re sure to find others nearby. The same is true for the surprise from earnings reports. If a company reports better-than-expected quarterly earnings, it’s likely the company will continue to beat expectations in the quarters to come. Moreover, if one company has a positive earnings surprise, other companies in the industry or sector may also announce positive earnings reports, surpassing expectations.
Investors’ organization of expectations that companies will continue to surprise positively in the next EPS reporting periods has created a stock price trend (even before this information is disclosed). This is clearly a profitable strategy. Conversely, the opposite is true for negative surprises. Companies that fail to meet Wall Street profit expectations will continue to disappoint in the following quarters. Because positive earnings surprises have a lasting effect, we should focus on companies that have beaten Wall Street forecasts and stay away from companies with negative surprises from earnings reports. The best way to find potential buying candidates is to check if recent quarterly earnings reports have been better than expected.
(Trade Like A Stock Market Wizard)
Mercury General (MCY)
Qualcomm (QCOM)
The earnings season is currently underway and active in the market. Follow us to identify stocks with high win rates.
Thanks.