How to Find Strong Computer and Technology Stocks Slated for Positive Earnings Surprises

Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

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 Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.

With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.

Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Seagate?

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. Seagate (STX) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.79 a share 13 days away from its upcoming earnings release on April 22, 2025.

STX has an Earnings ESP figure of +2.29%, which, as explained above, is calculated by taking the percentage difference between the $1.79 Most Accurate Estimate and the Zacks Consensus Estimate of $1.75. Seagate is one of a large database 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.

STX is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at Western Digital (WDC) as well.

Slated to report earnings on April 24, 2025, Western Digital holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.13 a share 15 days from its next quarterly update.

The Zacks Consensus Estimate for Western Digital is $1.06, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +6.6%.

Because both stocks hold a positive Earnings ESP, STX and WDC 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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