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.
...To continue reading this article you must be registered with AAII.
Already registered with AAII? Login to read the rest of this article.
to read this article and receive access to future AAII.com articles.