As we enter the busiest week of the first-quarter earnings season, the time is ripe to look into the potential of companies who are poised to beat earnings estimates. An above-expectation earnings report increases investors’ confidence in a stock, which leads to immediate price appreciation. Given how low earnings estimates had fallen prior to the beginning of the earnings season, many companies are reporting better-than-expected results. Per our Earnings Preview report, 132 members of the S&P 500 had reported earnings by Apr 22. These companies had an earnings beat ratio of 77.3% and revenue beat ratio of 56.1%. It is worth noting that only 3 of the 16 Zacks sectors had a 100% earnings beat ratio as of Apr 22. Of these, the auto sector had the best year-over-year earnings growth rate of 30.6%. Moreover, once all stocks report their results, the auto sector will be leading in terms of earnings growth, per our estimates. We expect the auto sector to have an earnings growth of 31% by the end of the season, followed by the construction sector with a 13% projected earnings growth. In fact, the total earnings of the S&P 500 companies are projected to decline 9.4% year over year by the end of the season. Thus, investors wanting to play on the companies’ earnings reports may be well advised to take a look at the auto sector. Factors at Play The auto sector has been reporting solid earnings growth in recent quarters. It recorded the third-highest earnings growth among the 16 Zacks sectors in the fourth quarter of 2015 and was the top in the third quarter. Strong global sales volumes have been boosting the results of the auto sector. In the first quarter of 2016, the key auto markets of U.S., China and Europe reported strong sales volumes. Further, high incentives and attractive vehicle launches are aiding sales of automakers. Moreover, low fuel prices are leading to elevated sales of higher margin vehicle segments, such as SUVs and light trucks, which are benefiting auto companies. However, the negative impact of foreign currency translation remains a major headwind for the auto sector. This is leading to a major drain on revenues. In fact, first-quarter revenues for the auto sector are expected to grow by only 0.9%. Sluggishness in many emerging markets and expenses related to safety recalls are other challenges. Nevertheless, improving margins and cost cutting measures are offsetting the weakness in revenues, resulting in impressive earnings growth. The Way to Pick Right Stocks Given the strong earnings outlook for the auto sector, it would be a good idea to look at some auto stocks while the first-quarter earnings season is still underway. However, the large number of participants in the auto industry makes it difficult to shortlist stocks that have the potential to beat on earnings. This is where the Zacks proprietary methodology comes in handy. It narrows down the list by helping select stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP. Earnings ESP shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. It helps in picking stocks that have high chances of posting a positive earnings surprise in their next earnings announcement. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. Here, we have selected five stocks from the automobile sector with the right combination of elements to report earnings beat this season. Ferrari N.V. (RACE) has an Earnings ESP of +12.50% and a Zacks Rank #3. The Zacks Consensus Estimate for the company’s first-quarter earnings is pegged at 32 cents per share. Ferrari is engaged in designing, manufacturing and selling sports cars. The company will report first-quarter 2016 financial numbers on May 2. Ford Motor Co. (F) currently carries a Zacks Rank #3 and an Earnings ESP of +11.63%. The Zacks Consensus Estimate for the company’s first-quarter earnings is 43 cents per share. Ford managed to beat earnings in two of the last four quarters and missed in one, delivering a positive average surprise of 11.17%. Ford is one of the largest auto manufacturers and auto financial services providers globally. The company is set to report first-quarter 2016 results on Apr 28. American Axle & Manufacturing Holdings Inc. (AXL) has an Earnings ESP of +7.04% and a Zacks Rank #3. The Zacks Consensus Estimate for the company’s first-quarter earnings is 71 cents per share. The company delivered positive earnings surprises in each of the trailing four quarters, with an average beat of 14.24%. American Axle is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. The company’s first-quarter 2016 financial results are scheduled for release on May 6. LKQ Corp. (LKQ) has an Earnings ESP of +2.38% and a Zacks Rank #1. The Zacks Consensus Estimate for the company’s first-quarter earnings is 42 cents per share. LKQ Corp has a history of outperforming earnings estimates. The company delivered positive earnings surprises in each of the trailing four quarters, with an average beat of 6.77%. LKQ Corp is the largest nationwide provider of recycled OEM automotive replacement parts and related services. The company will report first-quarter earnings on Apr 28. Lear Corp. (LEA) has an Earnings ESP of +2.12% and a Zacks Rank #1. The Zacks Consensus Estimate for the company’s first-quarter earnings is currently $2.83 per share. The company delivered positive earnings surprises in each of the trailing four quarters, with an average beat of 9.05%. Lear Corp. is a leading global supplier of automotive seating systems, electrical distribution systems and electronics. The company is expected to report first-quarter 2016 results on Apr 27. Bottom Line Investing in auto stocks that have the potential to beat earnings estimates should yield good returns in the near term. Moreover, the long-term outlook for the auto sector is positive. So investors looking for long-term prospects can also take advantage of this buying opportunity. 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 >> 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 FERRARI NV (RACE): Free Stock Analysis Report FORD MOTOR CO (F): Free Stock Analysis Report AMER AXLE & MFG (AXL): Free Stock Analysis Report LKQ CORP (LKQ): Free Stock Analysis Report LEAR CORPORATN (LEA): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research