• Advanced Energy Industries Inc (AEIS)
• American Medical Systems Holdings Inc (AMMD)
• BCE Inc (BCE)
• Bemis Company Inc (BMS)
• BG Group Plc (BRGYY)
• California Pizza Kitchen Inc (CPKI)
• CarMax Inc (KMX)
• Carter's Inc (CRI)
• Casual Male Retail Group Inc (CMRG)
• Encore Capital Group Inc (ECPG)
• Huaneng Power International Inc (HNP)
• Ingram Micro Inc (IM)
• Isle of Capri Casinos (ISLE)
• Jefferies Group Inc (JEF)
• LTC Properties Inc (LTC)
• Luxottica Group SpA (LUX)
• Marvel Entertainment Inc (MVL)
• Medical Action Industries (MDCI)
• The Men's Wearhouse Inc (MW)
• Metalico Inc (MEA)
• Natural Gas Services Group Inc (NGS)
• Nelnet Inc (NNI)
• Nippon Telegraph & Telephone Corp (NTT)
• Companhia Brasileira de Distrib (CBD)
• Penn Virginia GP Holdings LP (PVG)
• PHH Corp (PHH)
• Riverbed Technology Inc (RVBD)
• Sonic Automotive Inc (SAH)
• South Jersey Industries (SJI)
• STAAR Surgical Co (STAA)
• STEC Inc (STEC)
• Sunoco Logistics Partners LP (SXL)
• Sycamore Networks Inc (SCMR)
• Symmetricom Inc (SYMM)
• Synaptics Inc (SYNA)
• Take-Two Interactive Software Inc (TTWO)
• Telefonica SA (TEF)
• Tenet Healthcare Corp (THC)
• Trailer Bridge Inc (TRBR)
• TTI Team Telecom International Ltd (TTIL)
• Watsco Inc (WSO)

Screen of the Week written by Kevin Matras of Zacks Investment Research:

As we wrap up this recent quarter's earnings season, one thing that strikes me is the amount of extreme reactions to the earnings announcements.

Seems like either a surprise up or surprise down was met with an immediate double-digit price reaction - often in gap fashion.

The reasoning behind the market's aggressive reactions this go-around is an interesting topic.

But today, I'm more concerned with why, as an investor, you should care about surprises.

First off, an earnings surprise is simply when the company announces earnings above or below the consensus estimate (i.e., the market) going into the report.

If the company reports earnings above expectations, that's a positive surprise.

If they report earnings below expectations, that's a negative surprise.

The price reaction to such a surprise, by and large, is obvious - up for an upward surprise and down for a downward surprise.

But let's review why it's so important and what it really means.

In short, an earnings surprise is a signal of what a company's future earnings could/are going to look like.

An upside surprise could mean that the company will see better earnings than first expected.

Meanwhile, a downside surprise would likely be interpreted as a company that will see lower earnings than first expected.

The magnitude of the surprise will of course determine the size of the market's reaction.

The idea though is that it's not just the extra dollars and cents that the company makes in a certain period, but what it implies for future earnings periods as well.

An extra 10-cent surprise in one quarter is great. But 10 cents times 4 quarters, that's an extra 40 cents.

Or let's look at it in percentages - an extra 10% in one quarter is exciting. But now let's increase full year earnings by 10% or maybe even more. That's even more exciting.

The often extreme market reactions are about re-pricing the company's earnings prospects as fast as possible.

But not all surprises are created equal.

Top Line Growth or Cost Cutting?

A company can post better-than-expected earnings several ways - the most popular are thru top-line growth (sales) or cost savings.

Top line growth usually produces the biggest price reaction over cost cutting. An increase in sales is generally thought of as more sustainable than simple cost-cutting strategies because once you've cut costs, where's the future growth going to come from? You can only cut costs so much. You need sales to drive long-term growth.

Seeing an increase in revenue derived from sales of core products is where real growth will come from - and it will be considered higher quality.

What Does the Future Hold?

Another important key is what the company sees as its future.

A positive surprise coupled with downward guidance will usually produce a negative reaction.

Why?

If the company surprises but then downgrades their future earnings potential, they effectively removed a good portion of the hope generated from the surprise and the stocks will often trade lower as the future outlook will likely be weaker than expected.

Remember, the market is forward looking.

Lastly, some 'surprises' really aren't surprises at all. They are anticipated by the market, either because a company has a history of continuously beating their estimates or the stock has already priced in a 'surprise' by running up or going down prior to the announcement. Therefore, the 'surprise' in that direction really wasn't a surprise at all. That's where you'll sometimes see an opposite reaction to an earnings surprise - a buy the rumor; sell the fact-type event.

So while predicting companies that will surprise (and what the surprise is comprised of) is a difficult game - the benefit of an earnings surprise will typically last for 1-to-3 months after the report.

And don't forget, companies that surprise have a tendency to surprise again in the future, which is another reason why buying after an earnings surprise is a profitable trading strategy.

Screen

The screen I'm running today starts off with:

• Last EPS Surprise >= 10%
  (Once again, stocks posting positive surprises have a tendency of surprising again.)

• Last Sales Surprise >= 10%
  (A positive sales surprise shows top line strength.)

• Zacks Rank <= 2
  (Stocks with a Strong Buy or Buy from Zacks helps put the odds of success in your favor.)

• Price >= $5

• Volume >= 100,000

Here are 5 stocks that meet these criteria:

MVL Marvel Entertainment, Inc.
PLT Plantronics, Inc.
SPAR Spartan Motors, Inc.
TC Thompson Creek Metals Company, Inc.
ZRAN Zoran Corp.

Get the rest of the stocks on this list and start using this criteria in your own screening strategies.

Sign up now for your free trial of the Research Wizard and start picking better stocks today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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Contact: Jim Giaquinto
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As we wrap up this recent quarter's earnings season, one thing that strikes me is the amount of extreme reactions to the earnings announcements.

Seems like either a surprise up or surprise down was met with an immediate double-digit price reaction - often in gap fashion.

The reasoning behind the market's aggressive reactions this go-around is an interesting topic.

But today, I'm more concerned with why, as an investor, you should care about surprises.

First off, an earnings surprise is simply when the company announces earnings above or below the consensus estimate (i.e., the market) going into the report.

If the company reports earnings above expectations, that's a positive surprise.

If they report earnings below expectations, that's a negative surprise.

The price reaction to such a surprise, by and large, is obvious - up for an upward surprise and down for a downward surprise.

But let's review why it's so important and what it really means.

In short, an earnings surprise is a signal of what a company's future earnings could/are going to look like.

An upside surprise could mean that the company will see better earnings than first expected.

Meanwhile, a downside surprise would likely be interpreted as a company that will see lower earnings than first expected.

The magnitude of the surprise will of course determine the size of the market's reaction.

The idea though is that it's not just the extra dollars and cents that the company makes in a certain period, but what it implies for future earnings periods as well.

An extra 10-cent surprise in one quarter is great. But 10 cents times 4 quarters, that's an extra 40 cents.

Or let's look at it in percentages - an extra 10% in one quarter is exciting. But now let's increase full year earnings by 10% or maybe even more. That's even more exciting.

The often extreme market reactions are about re-pricing the company's earnings prospects as fast as possible.

But not all surprises are created equal.

Top Line Growth or Cost Cutting?

A company can post better-than-expected earnings several ways - the most popular are thru top-line growth (sales) or cost savings.

Top line growth usually produces the biggest price reaction over cost cutting. An increase in sales is generally thought of as more sustainable than simple cost-cutting strategies because once you've cut costs, where's the future growth going to come from? You can only cut costs so much. You need sales to drive long-term growth.

Seeing an increase in revenue derived from sales of core products is where real growth will come from - and it will be considered higher quality.

What Does the Future Hold?

Another important key is what the company sees as its future.

A positive surprise coupled with downward guidance will usually produce a negative reaction.

Why?

If the company surprises but then downgrades their future earnings potential, they effectively removed a good portion of the hope generated from the surprise and the stocks will often trade lower as the future outlook will likely be weaker than expected.

Remember, the market is forward looking.

Lastly, some 'surprises' really aren't surprises at all. They are anticipated by the market, either because a company has a history of continuously beating their estimates or the stock has already priced in a 'surprise' by running up or going down prior to the announcement. Therefore, the 'surprise' in that direction really wasn't a surprise at all. That's where you'll sometimes see an opposite reaction to an earnings surprise - a buy the rumor; sell the fact-type event.

So while predicting companies that will surprise (and what the surprise is comprised of) is a difficult game - the benefit of an earnings surprise will typically last for 1-to-3 months after the report.

And don't forget, companies that surprise have a tendency to surprise again in the future, which is another reason why buying after an earnings surprise is a profitable trading strategy.

Screen

The screen I'm running today starts off with:

• Last EPS Surprise >= 10%
  (Once again, stocks posting positive surprises have a tendency of surprising again.)

• Last Sales Surprise >= 10%
  (A positive sales surprise shows top line strength.)

• Zacks Rank <= 2
  (Stocks with a Strong Buy or Buy from Zacks helps put the odds of success in your favor.)

• Price >= $5

• Volume >= 100,000

Here are 5 stocks that meet these criteria:

MVL Marvel Entertainment, Inc.
PLT Plantronics, Inc.
SPAR Spartan Motors, Inc.
TC Thompson Creek Metals Company, Inc.
ZRAN Zoran Corp.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Zacks Investment Research