This is our short term rating system that serves as a timeliness indicator for stocks over the next 1 to 3 months. How good is it? See rankings and related performance below.
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Timing Is Everything
by Steve ReitmeisterMarch 10, 2010 | Comments : 0 Recommended this article: (0)
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Buying timely stocks is the key to profitability. I know the momentum crowd agrees with me. Everything they do is about locking in short term gains to maximize portfolio returns over time. But I can hear some mumbling from the value investors out there.
They believe the key to success is buying stocks that are undervalued. And they will profit when other investors awake from their slumber to discover the error of their ways. Granted value investing can offer some big gains. But too often it takes a long time to realize those gains, which ends up sapping the final returns in the portfolio.
Guess what? I am a value investor too. But a reformed value investor that has learned that I can combine value investing with timeliness to maximize returns. To help reform the rest of you, let me prove to you why timeliness is so important.
Meet Two Investors: Moe and Larry
No investing lesson is complete without the inclusion of the 3 Stooges. So let's imagine that Moe and Larry are both looking to buy stocks. They go into the market at the same time but purchase different companies. Moe ends up with a 20% gain while Larry sees a 10% rise.
Who did better?
The gains on the surface would have one believe that Moe clearly beat Larry. Yet there is one vital piece of information missing . . . how long did they own their stocks? Let's add that in now.
Moe made a 20% gain in 1 year=20% annualized return.
Larry made a 10% gain in 3 months=44% annualized return thanks to the power of compounded returns.
In this new light, Larry clearly kicked Moe's investing behind because Larry got his return in a much shorter period of time. Larry wasn't waiting around for the stock to make its move. And thus for the first time ever Larry Fine has been called a winner.
1) Break Old Habits: Too many value investors fall into the trap of buying stocks right after a big earnings miss. They believe the steep fall in price is an overreaction and the stock will bounce back soon. However, studies clearly show that these stocks are consistent underperformers often lagging the market for several months. So the first step towards doing things right, is to stop doing them wrong.
2) Best Value Metrics: Different value investors focus on different value metrics. Our research has shown that these are the best metrics to find winning value stocks.
- Price/Earnings (P/E) <=20: The lower the PE the better. But if too low, then you miss out on some nice growth stocks.
- Price/Book Value <=2: Benjamin Graham, the father of value investing, believed strongly in the effectiveness of low Price to Book ratio. Recent studies prove that is still the case.
- Current Price/52 week High >=.6: This is saying you want the price under the 52 week high, but not too far under. If too far under then you could be falling into the trap noted in point #1.
3) Earnings Estimates: Hey, if you've been to Zacks.com at least a few times, then you must know by now that earnings estimate revisions are the most powerful force impacting stock prices. Len Zacks proved this over 30 years ago with his seminal research. And there is no better way to tap into this timely indicator then with Zacks #1 Ranked stocks with a 28% annualized return. These are the stocks most likely to beat the market over the next one to three months.
Following each one of these three pieces will help you start producing better returns in your portfolio. Combine them altogether and you will be amazed at what you can accomplish.
6Timely Value Stocks Right Now
Currently there are6 timely value stocks in the portfolio of the Zacks Value Trader service. This is the same service that has beaten the S&P 500 in all 3 years since launching in 2007. In fact, in 2009 it jumped +47.5%. That's nearly double the S&P 500 thanks to many short term value plays like the +17% gain on Wonder Auto (WATG) in only 2 weeks. And +27% on Lubrizol (LZ) in only 2 months.
I invite you to see these6 stocks and learn the secrets behind the Value Trader’s success. Be sure to check it out by Saturday March 13 before the special offer ends. This is the ideal time to get aboard.
Steve is in charge of Zacks.com and all of its subscription services. He helped create the Zacks Value Trader service to help investors combine the power of value attributes with the timeliness of the Zacks Rank. About Zacks Value Trader
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