Whether you’re an investor focused on growth, value, income, or momentum, building a successful investment portfolio takes skill, research, and a bit of luck.
How do you find the right mix of stocks that will generate returns that could fund your retirement, your children’s school fees, or your short- and long-term savings goals?
Enter the Zacks rank.
What is the Zacks rank?
A unique and proprietary stock rating model, Zacks Rank uses revisions to a company’s earnings estimates, or changes to a company’s earnings forecasts, to help investors create a winning portfolio.
There are four main factors behind Zacks’ ranking: Accord, Magnitude, Upside, and Surprise.
The deal is the extent to which all brokerage analysts revise their earnings estimates in the same direction. The higher the percentage of analysts revising their estimates, the better the chances that the stock will outperform.
Magnitude is the size of the recent change in consensus estimate for the current and next fiscal year.
The benefit is the difference between the most accurate estimate, which is calculated by Zacks, and the consensus estimate.
Surprise consists of surprises in a company’s earnings per share in recent quarters; companies with positive earnings surprise are more likely to exceed expectations in the future.
Each of these factors is assigned a raw score which is recalculated each night and then compiled into the Zacks leaderboard. Using this data, stocks are categorized into five groups, ranging from “Strong Buy” to “Strong Sell. “
The power of institutional investors
Zacks Rank also allows individual investors, or retail investors, to benefit from the power of institutional investors.
Institutional investors are responsible for managing the trillions of dollars invested in mutual funds, hedge funds and investment banks. Research has shown that these investors can and do move the market because of the large amount of money they are dealing with, and therefore the market tends to move in the same direction as them.
In order to determine the fair value of a company and its stocks, institutional investors design valuation models that focus on earnings and earnings estimates. Because if you increase profit estimates then it creates a higher fair value for a company and its stock price.
With these changes, institutional investors will act, typically buying stocks with rising estimates and selling those with falling estimates. An increase in earnings expectations can potentially lead to higher stock prices and greater earnings for the investor.
Retail investors who jump in at the first sign of upward revisions have a clear advantage over large investors, as it can often take weeks or even months for an institutional investor to build a position. They will also benefit from the expected institutional purchases that may follow.
The Zacks Rankings can not only help you take advantage of earnings estimate revision trends, but it can also provide a way to access stocks that are highly sought after by professionals.
How to invest with the Zacks leaderboard
Zacks Rank is known to transform investment portfolios. In fact, a Zacks Rank # 1 (Strong Buy) stock portfolio has beaten the market in 26 of the past 32 years, with an average annual return of + 25.41%.
Additionally, stocks with a new # 1 (strong buy) ranking have some of the biggest profit potentials, while those that have fallen to a # 4 (sell) or # 5 (strong sell) have some of the highest potential for profit. worse.
Let’s take a look at Lithia Motors (BOY – Free report) , which was added to the Zacks Rank # 1 list on July 24, 2021.
Lithia Motors, Inc. is a leading automotive retailer of new and used vehicles and related services in the United States. As of December 31, 2020, the company offered 33 vehicle brands in 209 stores in 22 states of the United States. The main brands offered by Lithia Motors include Chrysler, General Motors, Toyota, Subaru, Honda, Acura, Ford, BMW, MINI, Nissan and Hyundai.
Four analysts have revised their earnings estimates upward in the past 60 days for fiscal 2021. Zacks’ consensus estimate has risen from $ 7.02 to $ 35.11 per share. LAD shows an average profit surprise of 28.3%.
Analysts expect profits to rise 93% for the current fiscal year, with revenue expected to rise 69%.
Even more impressively, LAD has gained in value over the past four weeks, up 2.2% from the S&P 500’s 0.6% loss.
With a No.1 ranking (strong buy), a positive trend in earnings estimate revisions and strong market momentum, Lithia Motors is expected to be on the shortlist of investors.
If you want even more information about Zacks Rankings or any of our many other investing strategies, check out the Zacks Education homepage.
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Our private Zacks # 1 ranking list, based on our quantitative Zacks Rank stock rating system, has more than doubled the S&P 500 since 1988. Applying the Zacks Rank in your own trading can increase your returns on investment when trading. any next transaction. View Today’s Zacks # 1 Ranking List >>