Two of the most commonly accepted measures of a value stock are a price-to-earnings (P/E) multiple of 15.0 and a price-to-book (P/B) multiple of 3.0. Although many studies have shown performance advantages to investing in value stocks, not all value stocks are actually bargains. A value a stock is only a good buy if earnings are expected to improve in the future.
High Rank Value is a strategy designed to find the true bargains among value stocks. By requiring a Zacks Rank of #1 ("Strong Buy") or #2 ("Buy"), this strategy restricts the pool of value stocks to only those with positive revisions in earnings estimates. In other words, profits are expected to improve in the future at a faster pace than originally anticipated.
The combination of a low valuation and a high Zacks Rank is very profitable. This Profit Track has consistently topped the S&P 500 during the past five years. In 2006, High Rank Value generated an annualized return of +29.3%, more than double the return for the S&P 500 (return data is through Dec 1, 2006).
Below you find all the parameters used in this strategy, as well as, detailed performance information.
PARAMETERS
P/E Using 12-Month EPS < 15: Value investors commonly look for stocks trading below 15x current earnings.
P/B (Common Equity) < 3: Value investors also often prefer a valuation below 3x book value.
Current Dividend Yield (%) > 2: Requiring a dividend yield of least 2% ensures both a steady stream of income in addition to the potential for price appreciation.
Zacks Rank < 2: A Zacks Ranking of #1 or #2 is indicative of rising earnings estimates. What's so special about the Zacks Rank? Find out by clicking here.
To see the list of stocks that currently pass this winning screen CLICK HERE
All the Profit Track strategies were created and backtested using the Research Wizard software from Zacks Investment Research. If you like this High Rank Value strategy but want to narrow down the list of stocks and even improve the performance, then you should start a free trial to the this powerful stock picking tool. Learn more about the Research Wizard and Free Trial offer.
The S&P 500 Index ("S&P 500") is a well-known, unmanaged index of the prices of 500 large-company common stocks selected by Standard & Poor's. The S&P 500 includes the reinvestment of all dividends, no transaction costs, and represents the gross returns before management fees.
The performance calculations for the Profit Track strategies were produced through the backtesting feature of the Research Wizard using the DBCMHIST database and consist of the total return (price changes + dividends) of an equal weighted portfolio. Returns are calculated on a specified periodic basis (four weeks for all Profit Track strategies except for Growth and Income and High Rank Value, which use a 24-week holding period) and assume no transaction costs. Each strategy is rebalanced at the start of each new period. Returns can be stated as either annualized or compounded.
Stock trading/investing involves risk and you can lose some or all of your investment. Hypothetical or backtested results may not always be duplicated in the real world. Backtesting can at times produce an unintended look-ahead bias. Results can also at times be over or understated due to the exclusion of inactive companies. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading, not the least of which is the ability to withstand losses or to adhere to a particular trading strategy in spite of trading losses. These are material points which can also adversely affect actual trading results. The backtested results prepared for the Profit Track strategies were done using the DBCMHIST database and consisted of only active companies. The Research Wizard program has been aligned, to the extent possible, to eliminate look-ahead bias. Zacks however cannot make any guarantees in regard to this or any other possible limitation.
Performance information for other Zacks. portfolios and strategies is available at http://www.zacks.com/performance
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