How to Find Strong Medical 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.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.

Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.

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.

Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.

Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.

Should You Consider Novartis?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Novartis (NVS) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $2.30 a share 25 days away from its upcoming earnings release on October 28, 2025.

By taking the percentage difference between the $2.30 Most Accurate Estimate and the $2.28 Zacks Consensus Estimate, Novartis has an Earnings ESP of +1.10%. Investors should also know that NVS is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

NVS is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at Royalty Pharma (RPRX) as well.

Slated to report earnings on November 5, 2025, Royalty Pharma holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $1.12 a share 33 days from its next quarterly update.

Royalty Pharma's Earnings ESP figure currently stands at +1.36% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.11.

Because both stocks hold a positive Earnings ESP, NVS and RPRX could potentially post earnings beats in their next reports.

Find Stocks to Buy or Sell Before They're Reported

Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>

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This article originally published on Zacks Investment Research (zacks.com).

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