What are we looking for?
North American companies with a combination of positive price momentum, upward analyst revisions and earnings' predicted surprise greater than 2 per cent.
The screen
Using Thomson Reuters StarMine quantitative models, I screened for firms with a market cap greater than $500-million that rank better than 75 per cent of securities in North America across positive analyst revisions, and medium-term price momentum.
StarMine's SmartEstimates model helps better predict future earnings by allocating different weights to analyst's estimates based on their historical accuracy. The model is based on a stock's most important performance metric (usually earnings per share) while taking secondary metrics into consideration (earnings before interest, taxes, depreciation and amortization – EBITDA – or revenue). Research using 14 years of historical data shows that when the SmartEstimate deviates from the consensus estimate by 2 per cent or more, the model can correctly anticipate the direction of earnings surprise with an accuracy rate of more than 70 per cent.
The Analyst Revision Model is designed to predict future changes in analyst sentiment; it is based on the premise that revisions occur in clusters, where past revisions by top-ranked analysts are highly predictive of future revisions by laggard analysts. The StarMine Price Momentum Medium Term model compares the 10-day average closing price with the average daily closing price over the last 30 trading days, identifying stocks in the midst of a trend reversal, or ones that may sustain their positive momentum.
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What did we find?
Our screen yields 10 companies primarily across the energy sector. Apache Corp. explores, produces, and develops natural gas and crude oil products, with operations across the United States, Canada, Britain and Egypt. Apache stands out with the largest predicted earnings surprise, which indicates material differences in earnings estimates between top-ranked analysts and general Street consensus.
This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.
Khaled Eniba works in the financial and risk unit of Thomson Reuters and specializes in banking and research.