Stocks go up and stocks go down. But more often than not, stocks go sideways.
Usually, a sideways-trending stock is waiting for a catalyst to take it out of its trading range. But some stocks can remain range bound for a long time.
Aside from an earnings surprise, there is no better catalyst than earnings estimate revisions to move a stock out of its trading range. And the Zacks Rank is one of the best ways to combine these two powerful items for market-beating returns.
National Retail Properties (NNN)
National Retail Properties is a large-cap stock in the REIT-Equity Trust Industry. It invests in high quality, single-tenant retail properties with established clients like Best Buy, CVS, OfficeMax and more for long-term leases.
REITs had been on a tear for a good part of 2011 and early 2012, but began to stall out as 2012 came to a close and 2013 began. NNN was one of those companies, drifting within a range between $30 and $33 for roughly 6 months.
But on February 2nd, 2013, NNN received a Zacks Rank #2 (Buy) signal, which let everyone know that it was getting ready to breakout. Trading at $32 at the time of the rating change (just 5 days before they were set to announce earnings), upward earnings estimate revisions predicted a positive surprise that would send the stock higher without looking back.
On Feb. 7th, as expected, NNN positively surprised, beating estimates by 4.55%, which helped accelerate their climb higher.
By the time the next earnings season rolled around, their 12 Month Forward Earnings Estimates had climbed from $1.82 to $1.90 while the stock increased by 22.8% to $39.31.
Having maintained a Zacks Rank #2 (Buy) rating this entire time, expectations were high for another beat when they released earnings again on May 2nd. And true to form, NNN did it again with a 4.35% positive surprise, which sent the stock price climbing even higher and faster. By the close of trading on 5/10/13, NNN was trading at $40.78, up 27.4%, with earnings estimates at $1.91, all within the span of a little more than 3 months.
It’s been proven that earnings estimates revisions are the most powerful force impacting stock prices. And that’s why the Zacks Rank uses earnings estimate revisions in ranking stocks.
Whether a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy), it can help pinpoint which stocks are ready to outperform over the next 1-3 months and keep you in on stocks with a high probability of positively surprising. Simply put, companies receiving upward earnings estimate revisions have a tendency of positively surprising. And companies that positively surprise are more likely to surprise again in the future. That, of course, leads to more upward earnings estimate revisions, with the cycle repeating itself.
Make sure your next stock pick has a favorable Zacks Rank and put the odds of success in your favor.
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