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The 6 Elements of the Zacks Method for Investing

The 6 Elements of the Zacks Method for Investing

1) Valuation – There is plenty of empirical evidence showing that stocks with low valuations will outperform the market over the long haul. It’s not easy to find ‘cheap’ stocks after the market’s impressive run, but we look for companies that are trading with low Price-to-Earnings [P/E] and Price-to-Book [P/B] multiples relative to their peers and their own history.

2) Management Effectiveness – It is very important to get a sense for how effective the company’s management is in utilizing the resources available to them. This can be done a number of different ways, but our research shows that Return on Equity [ROE] does a good job of capturing this attribute. So we seek out companies generating ROEs that are superior to their industry peers.

3) Recent Analyst Upgrades – Our research also clearly shows that stocks that have recently received a recommendation upgrade from brokerage analysts will continue to outpace the market. Most of that benefit is felt in the short run. However, quite often a stock that receives one upgrade is likely to get more in the future, which keeps pushing the stock higher.

4) Best Industries – Even the best looking stock will underperform the market if it’s in an out-of-favor industry. That is why we overweight stocks from the best industries and sectors. And there is no better guide to choosing the right groups than the Zacks Industry Rank, which focuses on the earnings estimate revisions for all the stocks in the industry.

5) Long-Term Attractiveness – We look for stocks with a Zacks Recommendation of ‘Neutral’ or better that enjoy catalysts for outperformance. While our preferred long-term indicator is an ‘Outperform’ rating, we also consider neutral-rated stocks that stand to get upgraded to our preferred rating. The main ingredient behind the Zacks Recommendation is positive changes in a company’s earnings estimates.

6) Timeliness – There is no better timeliness indicator than the Zacks Rank, which has produced annual returns of +26% since 1986 for Zacks Rank #1 (Strong Buy) stocks. We look for #1 and #2 Ranked stocks, but will consider #3 Ranked stocks if they show the potential for upgrade. These signals tell us that now is a good time to get into the stock. Just like the Zacks Recommendation, it focuses on stocks with the best earnings estimates.

Zacks has long been known for harnessing the power of earnings estimate revisions to foretell stock prices. No surprise then that half of the six factors makes use of this powerful driver.

How to Find This Information?

The first three of these elements are free and widely available from Zacks.com and other investment websites. If you just concentrated on these elements, you would be much better off than you are now.

The last three elements are proprietary to Zacks Investment Research and only available through our premium subscription services. Adding these three elements to the free ones above will put an almost unfair advantage in your hands.

The best way to tap into all 6 elements right now is through our Zacks’ Top 10 Stocks for 2014 service. These stocks have been hand selected to outperform the market, which is amply borne out by its recent performance. In 2013, we had a phenomenal +40.1% return through the end of November, handily beating the S&P 500 index. In 2012, the Top 10 portfolio nearly tripled the market’s performance, with returns of +31.7% vs. the +12.1% returned by the S&P 500.

Get In On the Ground Floor

After all, the sooner you invest in Zacks’ Top 10 Stocks for 2014 portfolio, the more you figure to gain. Plus, you will be well positioned to withstand any market uncertainty with fewer worries. Be among the first to take advantage of these Best-of-the-Best fundamentally sound stocks before they’re released on Thursday, January 2.

Look into Top 10 Stocks for 2014 today >> 

Happy Investing,

Sheraz Mian
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Sheraz Mian is the Director of Research. He determines which valuable data to use to assess winning stocks and funds. He is a contributor for Zacks Equity Research and Earnings Analysis, and is also the editor of Zacks’ Top 10 Stocks for 2014.

 

Building a Winning Portfolio for 2014

Building a Winning Portfolio for 2014

By: Sheraz Mian

December 28, 2013


Stocks have done exceptionally well this year, with total returns for the S&P 500 index close to +30%. But many investors didn’t enjoy
such strong returns in their own portfolios.

Why is that?

The simple answer is that they were in the wrong stocks because most investors typically invest without a clear roadmap. The rising tide of a broad rally, like the one we experienced in 2013, will produce plenty of green arrows in most portfolios. But that is not enough to come out ahead of the market, which should be the goal of every investor.

Navigating an uncertain investment environment without a clear plan of action is doomed to fail. And unfortunately 2014 is shaping up as one of those uncertain years. Thus now is exactly the time to make those decisions to put your portfolio on a sound footing for the year ahead. I hope the ideas in the this article help you do just that.

This May Not Be For You

If you are someone who has a consistent stock selection system that helped you come ahead of the market in 2013, then you probably don ‘t need our advice. Feel free to stop reading at this stage.

With the rest of you, I would like to share the investment process that we rely on here at Zacks, which makes use of 6 different factors to build a winning portfolio. Each one of these factors individually will help you pick good stocks. But putting all of them together gives you a significant edge over others in stock market investing.

This process lies at the heart of our Zacks’ Top 10 Stocks for 2014 service, which is about to be made available. This stock-selection process is called the Zacks Method for Investing.

A random selection of good stocks, without an overarching outlook for the market, will not give you the desired results. The portfolio is essentially the execution of your outlook for the market. For the Top 10 Stocks for 2014, we started with the market outlook that I shared with you two weeks back and then used these factors to build the portfolio.

What is a proxy?

A written authorization given by a shareholder for someone else, usually the company’s management, t…

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proxy
tod-term-icon.jpg TERM OF THE DAY

proxy

  1. A written authorization given by a shareholder for someone else, usually thecompany’s management, to cast his/her vote at a shareholder meeting or at another time.
  2. More generally, a person who represents another person.
Learn more about this term
Usage Example
After receiving written permission, the corporation acted as a proxy for a handful of shareholders by casting a vote that aligned with company wishes.
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What International Exchanges Exist For Futures?

Exchanges are markets with standardized rules, which enable buyers and sellers to meet at a common junction to deal in their commodities. Futures contracts are …

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Where Big Money is Made

Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting.

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What is a Certificate of Deposit (CD)?

Certificate of Deposit. Short- or medium-term, interest-bearing, FDIC-insured debt instrument offere…

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CD
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tod-term-icon.jpg TERM OF THE DAY

CD

Certificate of Deposit. Short- or medium-term, interest-bearing, FDIC-insured debt instrument offered by banks and savings and loans. CDs offer higher rates of return than most comparable investments, in exchange for tying up invested money for the duration of the certificate’s maturity. Money removed before maturity is subject to a penalty. CDs are low risk, low return investments, and are also known as "time deposits", because the account holder has agreed to keep the money in the account for a specified amount of time, anywhere from three months to six years.

Learn more about this term
Usage Example
I chose to invest money in an certificate of deposit because I did not want to be tempted to withdraw funds at any given moment and it bears a maturity date of four years.
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tod-ny-resolution-w1.jpg Now that 2014 is here, it’s time to get started! The first step to achieving your personal finance goals is assessing your current financial health. Let’s make this your best year yet!
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List of Important Financial Ratios for Stock Analysis

When you’re research individual stocks for investing, you have to look beyond the basics like share price, number or shares, and market capitalization. Here are …

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tod-tip-icon.jpg TIP OF THE DAY

5 Common Ways to Protect Against Fraud

Here are basic precautions against identity theft, check fraud and other financial scams:
1. Be wary of requests to "update" or "confirm" personal information — especially your Social Security number…

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