How to Profit From
Earnings Trends and Surprises
Zacks Investment Research has been analyzing earnings trends and surprises since 1979. Based on that experience we have developed the Zacks Rank.
The Zacks Rank rates stocks on a five point scale. But what does this rating mean and how can you use it to improve your investing performance? We'll answer that below.
The Zacks Rank forecasts the future price movement of a stock."Future" is an important word here. It's not a rating of past performance but future movement.
Why is that so significant?
Not to sound blunt, but the past is done. The future of a stock is all that matters.
That's exactly what the Zacks Rank predicts.
Let's explain with a bit of history. In the 1970s, Len Zacks worked as the head of quantitative research for a major brokerage firm. Holding a Ph.D. from MIT, Len created models designed to help investors beat the market.
After extensive research and testing, Len discovered that:
Earnings estimate revisions are the most powerful force impacting stock prices.
From that discovery, the Zacks Rank was born. By using four factors about earnings estimate revisions, the Zacks Rank can accurately predict which stocks are most likely to beat the market over the next three months. And conversely, which are most likely to underperform the market.
Strong Buys, rated #1 by Zacks, are most likely to beat the market.History bears this out as since 1988, the Zacks Rank #1 stocks have gained 26% on average each year compared to 9% by the S&P 500 for the same time.
Strong Sells, rated #5 by Zacks, are those stocks most likely to underperform the market. Again, for more than two decades, this fact has been proven as the Zacks Rank #5 stocks deliver a measly 2% annual average return.
For more detail, check out this chart which breaks down the performance of all five of the Zacks Rank stocks.
|Zacks Rank Performance|
|#1 - Strong Buy||26.1%|
|#2 - Buy||18.2%|
|#3 - Hold||9.3%|
|#4 - Sell||3.7%|
|#5 - Strong Sell||1.5%|
As you can see, knowing the Zacks Rank of your stocks can help you significantly buy better stocks and sell poor performers.
It's easy to learn more about the Zacks Rank and use it in your investing:
- Learn our Bull and Bear of the Day stocks
- Download our free Zacks Rank Guide
- View our educational video series
And that's in addition to insightful market commentary, proven screening strategies, and mutual fund ideas, backed by our Zacks Mutual Fund Rank.
All free with no obligation to buy.
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