How to Play the Earnings Game… and Win

Beating the Street at the earnings game is all about knowing the market's true expectations for a stock.

Over the past five years or so, the term "whisper number" has become more popular, as investors have figured out that there's more than just a company's balance sheet and earnings driving its stock price.

Knowing the market's expectations — not just the analyst expectations — for a stock will often provide the edge necessary to turn earnings season into a profit opportunity.

The more data and trends you can look at to determine not only what investors expect, but also how investors are positioning themselves for the expected move, the better.

Simply put, tracking what people are doing can be more valuable than just tracking what they are saying. In other words, are they putting their money where their mouth is?

Four Bullish Earnings Trades

Our Earnings Risk Index (ERI) tracks the data and market activity necessary to assess how the market has valued a stock and whether there is a disparity between what the market expects and what the company is likely to deliver. The larger the disparity, the better the trading opportunity.

ERI uses technical, fundamental and sentiment data to quantify those expectations. And it has provided some big returns for our Winning Edge subscribers already this earnings season.

The following four stocks are among those favored by ERI as bullish earnings plays ahead of their upcoming announcements.

Earnings Trade #1: Cerner Corp. (CERN)

Cerner Corp. (CERN) is a health care information technology provider, and that's a hot place to be right now.

The company reports on July 29, and earnings expectations are modest. In fact, only a third of covering analysts consider CERN a "buy," which leaves plenty of room for upgrades. The stock needs to break through potential resistance at $65, and earnings could give it that boost.

Buy CERN call options.