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What are we looking for?

Companies statistically likely to outperform expectations this year.

The screen

Stock prices are underpinned by analysts’ consensus or Street forecasts. Clearly, some analysts are better than others and now, more than ever, is a time to give more credence to those that have proven to be more accurate in the past. Also, an estimate made only a month ago is now completely irrelevant, based on how much the world has changed. Unfortunately, the Street estimates made widely available to the investing public consider all analysts to be equal, and an estimate made a month ago carries as much weight as one made yesterday.

Refinitiv’s SmartEstimate, which has proven to be more accurate, dynamically weighs analysts’ estimates in the calculation of the consensus, based on how accurate they’ve been in the past and how recent the estimate is. Furthermore, an algorithm detects whether a cluster of revisions are made at a specific point in time – an indication that an important development has occurred – and disregards any estimate made before that time. As an example, an estimate of earnings for an airline made in February would be included in the Street estimate, but not in the SmartEstimate.

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To find companies that are likely to outperform, we screen the universe of stocks traded in North America with coverage of at least 15 analysts and US$5-billion in market cap for those whose SmartEstimate of earnings for this year is 5 per cent higher than the Street estimate. (In the past, when the SmartEstimate predicted surprise is more than 2 per cent, the company announced earnings that beat the consensus estimate 70 per cent of the time. Conversely, when the predicted surprise is in negative territory, the company announces earnings that fall short of consensus 70 per cent of the time.)

More about Refinitiv

Refinitiv, formerly the financial and risk business of Thomson Reuters, is one of the world’s largest providers of financial markets data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv’s environmental, social and governance (ESG) data cover more than 70 per cent of the world’s public companies by global market capitalization, using more than 400 metrics.

What we found

The largest company to pass the screen is Pinduoduo Inc., a Chinese mobile e-commerce platform (which trades on the Nasdaq as a U.S. depositary receipt), one of the rare business models that could thrive in today’s isolated world. The Street estimate is that Pinduoduo will lose 1.43 yuan a share (20 US cents) this year. However, the four historically most accurate analysts predict, on average, a loss of only 0.49 yuan. The Street estimate is dragged down by four analysts who are new to covering Pinduoduo, who estimate (on average) a loss of 2.59 yuan a share, and the four historically least accurate analysts who predict a loss of 2.67 yuan.

The second-largest company is Intercontinental Exchange Inc. The company operates regulated marketplaces for virtually all asset classes – such as equity, credit, interest rates, energy, commodities, derivatives. Volatile markets mean lots of trading and lots of hedging with derivatives and high transaction revenues for exchanges. The Street forecasts that Intercontinental will earn US$4.28 a share this year. However, five analysts revised their estimate upward in the past week, which was identified as a cluster by the SmartEstimate model. The most recent estimate, made Tuesday by Goldman Sachs, is the most bullish of all 20 analysts covering Intercontinental. The weighted average estimate of these five, who are using the most recent and therefore most relevant information, is that the company will earn US$4.52 a share. The remaining analysts, working on older, less relevant information, predict, on average, US$4.18.

Newmont Corp., a gold miner, is a very similar case to Intercontinental Exchange. Gold is a traditional haven asset and its value tends to rise in times of increased uncertainty and volatility – times like now. The knock on gold is that it doesn’t pay a yield, but this is less of an issue now, in a world of near-zero and negative interest rates. According to the SmartEstimate model, a cluster of eight analysts revised their estimates in the past week, and similar to ICE, the most bullish estimate was made Tuesday, at US$4.35 a share. The SmartEstimate of these eight is US$2.26. It’s worth pointing out that the average of those who made an estimate before last week is US$1.95, which is dragging down the current Street estimate of US$2.09.

Investors are advised to do their own research before trading in any of the securities shown below.

Select North American-listed stocks

CompanySymbolCountryTRBC Activity NameMkt. Cap. (US$ Mil.)SmartEstimate EPS Predicted Surprise (%)1Y Rtn. (%)Div. Yld. NTM (%)Recent Close (US$)
Pinduoduo Inc.PDD-QChinaE-commerce & Auction Svcs.39,63611.146.10.034.10
Intercontinental ExchangeICE-NUSAFin'l & Comm. Mkt. Operators36,9985.5-8.21.866.85
Newmont Corp.NEM-NUSAGold Mining33,6527.924.12.341.66
Spotify Technology SASPOT-NLuxembourgOnline Services 21,9556.2-16.80.0118.18
Splunk Inc.SPLK-QUSASoftware 17,6935.7-8.20.0113.44
Biomarin PharmaceuticalBMRN-QUSABiopharmaceuticals12,84114.1-19.40.071.37
Crowdstrike Holdings Inc.CRWD-QUSAIT Services & Consulting 10,93712.0-11.30.051.45
Tradeweb Markets Inc.TW-QUSASecur. & Commod. Exchgs.8,2225.53.10.936.64
Zscaler Inc.ZS-QUSASystem Software7,5066.3-14.40.058.03
CyrusOne Inc.CONE-QUSASpecialized REITs 5,24731.1-9.04.545.62

Source: Refinitiv

TRBC = Thomson Reuters Business Classification

Hugh Smith, CFA, MBA, is director of Refinitiv’s ESG and investment management business for the Americas, and a director on the board of the Responsible Investment Association.

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