Low P/E Stocks With Positive Earnings Surprises
A stabilizing economy and improvement in productivity helped to usher in a wave of positive surprises this past quarter. Seventy-two percent of the stocks covered by AAII’s Stock Investor Pro screening program reported quarterly earnings that surpassed the consensus forecast—the definition of a positive earnings surprise. Contrarian investors have observed that positive surprises are even more dramatic events for value-oriented stocks since the surprise often triggers a change (for the better) in the market perception of a company.
This issue’s First Cut screens for stocks with below-average forward price-earnings ratios (price divided by expected earnings per share) that have reported a positive earnings surprise and upward revisions in future earnings expectations.
While there is an immediate market reaction to a surprise or an earnings revision, there is often a long-term price impact as well—supporting the notion that it may not be too late to buy an attractive company after a better-than-expected earnings report. Studies indicate that a positive effect can persist for as long as a year after the announcement.
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