Why Investors Need to Take Advantage of These 2 Consumer Discretionary Stocks Now

Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.

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, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.

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 Royal Caribbean?

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. Royal Caribbean (RCL) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $4.10 a share 15 days away from its upcoming earnings release on July 24, 2025.

By taking the percentage difference between the $4.10 Most Accurate Estimate and the $4.05 Zacks Consensus Estimate, Royal Caribbean has an Earnings ESP of +1.25%. Investors should also know that RCL 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.

RCL is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is Netflix (NFLX).

Netflix, which is readying to report earnings on July 17, 2025, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $7.25 a share, and NFLX is eight days out from its next earnings report.

For Netflix, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $7.05 is +2.84%.

Because both stocks hold a positive Earnings ESP, RCL and NFLX 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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