Gone are the days when investors were bullish by just seeing earnings growth. Now, earnings improvement (no matter how big it is) seems insufficient for solid moves in the market. It is the “BEAT” that matters the most. This is especially true this time around, when the alarm bells of an earnings recession are ringing loud and clear. The S&P 500 has posted negative earnings growth in the last 3 quarters, and is currently on track to post their fourth consecutive quarter of negative earnings growth. But this doesn’t mean that there will not be companies that will post positive earnings surprises this earnings season. Why Is Earnings Surprise So Important? An earnings surprise is typically the case when actual or reported earnings come in higher than the consensus estimate. Historically, stocks of companies with solid quarterly earnings (on a nominal basis) tank if they miss or merely meet market expectations. After all, a 10% earnings rise (though apparently looks good) doesn’t tell you everything about the company. This growth may be decelerating over the years or quarters, raising questions over the company’s overall fundamentals. Also, seasonal fluctuations come into the play sometimes. If any company’s Q1 is seasonally weak and Q4 is strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company. On the other hand, analysts apply their insights and consider a company’s guidance when forecasting its earnings estimate. As a result, beating that key number is almost equivalent to beating one’s own expectation as well as the market estimate. Needless to say, this gives you a better picture of the company’s bottom line. And if the margin of earnings surprise is big, it typically sends the stock skyrocketing immediately after the release. Also, a history of positive earnings surprise generally works as a catalyst in sending a stock higher. It indicates the company’s ability to surpass the estimates. So, investors take it in their consideration while betting on the stock with the expectation that the company will do the same trick to outpace the estimates in the upcoming release. Hence, earnings surprise can be viewed as a key metric for share price outperformance. The Winning Strategy In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the followingas our primary screening parameters. Last EPS Surprise greater than or equal to 10%: Stocks delivering positive surprise in the last quarter tend to surprise again. Average EPS Surprise in the last four quarters greater than 20%: We lifted the bar for outperformance slight higher by setting average EPS surprise for the last four quarters at 20%. Average EPS Surprise in the last two quarters greater than 20%: This points to a more consistent surprise history and make the case for another surprise even stronger. In addition, we place a few other criteria that push up the chance of a surprise. Zacks Rank equal to 1:Only companies with a Strong Buy rating can get through. Earnings ESPgreater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen, as per our proven model. In order to zero in on those that have long-term growth potential and high trading liquidity we have added the following parameters too. Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%:Solid expected earnings growth exhibits the stock’s long-term growth prospects. Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity. Just these few criteria narrows down the universe from over 7,700 stocks to around 8. Here are five of the eight stocks that passed the screen: Barracuda Networks Inc. (CUDA) Hasbro Inc. (HAS) Intuit Inc. (INTU) USG Corporation (USG) Inphi Corporation (IPHI) You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge. The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out. Click here to sign up for a free trial to the Research Wizard 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. Disclosure: Performance information for Zacks’ portfolios and strategies are available at: http://www.zacks.com/performance Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report USG CORP (USG): Free Stock Analysis Report INTUIT INC (INTU): Free Stock Analysis Report HASBRO INC (HAS): Free Stock Analysis Report INPHI CORP (IPHI): Free Stock Analysis Report BARRACUDA NTWRK (CUDA): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research