Filtering the Zacks Rank

The Zacks Rank is probably the most effective rating system out there. In good markets or bad, stocks with a Zacks #1 Rank continue to outperform.

In fact, since 1988, the average annual return of Zacks #1 Rank stocks is up over 32% a year.

Wow!

But today I want to focus on recreating those returns in a practical trading account.

Since there are typically over 200+ Zacks #1 Rank stocks at any time, it’s important to know what other filters to apply to the Zacks Rank to generate a smaller (more tradable) watchlist.

Two filters in particular, when added to the Zacks #1 Rank, not only narrows down the number of qualified stocks to a practical portfolio size (five), it often times increases its performance as well.

Parameters

The two filters I’m talking about are:

• % Change Q1 Est. over 4 Weeks > 0
  (Positive current quarter estimate revisions over the last four weeks.)

• % Broker Rating Change over 1 Week = Top # 5
  (The Top 5 stocks with the best positive average broker rating changes over the last week. And by picking the Top 5, you’ll never have any more than five stocks and never any less than five stocks in your portfolio at a time – making it extremely easy to trade.)

And of course …

• Zacks Rank = 1

These two items added to the Zacks #1 Rank, produce powerful results!

Results

I backtested this strategy (the Filtered Zacks Rank2) using a one week holding period from 12/31/1999 through 9/28/2007 (roughly 7 3/4 years) and it showed a total compounded gross return of over 6,012%. What does that mean? That’s a Compounded Average Growth Rate of over 69% a year! And it was designed to only hold five stocks in your portfolio at a time.

And so far in 2007, (YTD through 9/28/07), its already showing a total compounded gross return of more than 70%.

Wow!

Here are a few of the stocks that qualified the Filtered Zacks Rank2 strategy for 10/8/07:

NDAQ - Analyst Report Nasdaq Stock Market
SUG Southern Union Co.
XCO - Snapshot Report EXCO Resources, Inc.

Get the rest of the stocks on this list and start trading the filtered Zacks Rank2 (or any of our other strategies) in your own account. Remember, the key to successful screening is in discovering those screens that have produced profitable results in the past. And that`s exactly what you get with the Research Wizard stock picking and backtesting program. Click here to learn more.

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.

Read the full analyst report on SUG

Read the full analyst report on XCO

Read the full analyst report on NDAQ