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How to Identify Stocks with the Best Profit Potential
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Zacks Investment Research employs several proprietary methodologies and techniques to make it easier for investors to detect top stocks at any given point in time. Let’s take a look at a recent example of how to put the various Zacks Ranking systems to good use in today’s market environment.
One approach to extracting the most value out of what Zacks has to offer is to implement a top-down approach. With this investment tactic, we’ll start with leading stock market industry groups that are identified by our Zacks Industry Rank system.
Zacks Industry Rank: Improve Your Stock-Picking Success
A plethora of historical research studies have consistently shown that approximately half of a stock’s price appreciation is due to its industry grouping. Investing in stocks within leading industry groups provides a constant ‘tailwind’ to our success. We can use the Zacks Industry Rank to locate stocks with the most potential to outperform in the future.
Our industry ranking system sorts companies into more than 250 industry groups. The Zacks Industry Rank is calculated by averaging the Zacks Rank for all individual stocks within a specific industry. A recent 10-year backtest has shown that stocks within the top 50% of all Zacks Ranked Industries outperformed the bottom half by a factor of more than 2 to 1.
Image Source: Zacks Investment Research
Once the top industry groups are identified, we can peel back the curtain to find stocks with the highest Zacks Rank. In our example, we’re going to target the Zacks Banks-Foreign industry group which ranks in the top 4% of all industries.
Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months. By focusing on top stocks within leading industry groups, we can dramatically improve our odds of success. Also note that this group has steadily outperformed the market to kick off the New Year:
Image Source: Zacks Investment Research
Despite the impressive move, this group remains relatively undervalued:
Image Source: Zacks Investment Research
Zacks Rank: Locate Stocks with the Best Profit Potential
The Zacks Industry Rank is linked to our ranking system for individual stocks – the Zacks Rank. The Zacks Rank harnesses the power of earnings estimate revisions, which history has shown is the most powerful force impacting stock prices over time. Stocks with rising earnings estimate revisions have significantly outperformed the S&P 500 year after year. This ranking system uses five different ranks: #1 (Strong Buy), #2 (Buy), #3 (Hold), #4 (Sell), and #5 (Strong Sell).
The Zacks Rank has made the process of identifying top stocks with improving earnings estimates simple (and very profitable). Since 1988, Zacks Rank #1 (Strong Buy) stocks have generated a 24.28% annual return versus the 10.51% annual return for the S&P 500. Zacks Strong Buy stocks have also outperformed the S&P 500 in 26 out of the last 31 years that we have been tracking the data. Only the top 5% of stocks receive the coveted Zacks Rank #1 (Strong Buy) rating.
Our top-down process narrows the investable universe, starting with the Zacks Banks-Foreign industry (top 4%). Let’s take a look at a leading Zacks Rank #1 (Strong Buy stock) contained within this top industry.
UBS Group AG provides financial advice and solutions to institutional, corporate, and private clients globally. The company offers a host of financial-related services such as personal banking, investment advice and solutions, lending, wealth planning, asset allocation, and investment banking. UBS was founded in 1862 and is headquartered in Zurich, Switzerland.
UBS has surpassed earnings estimates in three of the past four quarters, with an average earnings surprise of 16.6%. The financial firm most recently reported fourth-quarter earnings back in January of $0.50/share, beating the Zacks Consensus Estimate of $0.37 by 35.14%. The company’s strong capital position and efficiency initiatives will likely continue to aid profitability.
Shares have risen in stride, advancing more than 55% off the October bottom and recently hitting a 52-week high.
UBS is a Zacks Rank #1 (Strong Buy) that has witnessed improving earnings estimate revisions. Looking into the current year, analysts have raised their 2023 EPS estimates by 5.85% in the past 60 days. The Zacks Consensus Estimate now stands at $2.17/share.
Image Source: Zacks Investment Research
Employing a top-down approach utilizing the various Zacks Ranking systems can help investors find leading stocks like UBS more easily. As we move further into 2023, be sure to take advantage of all that Zacks has to offer.
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How to Identify Stocks with the Best Profit Potential
Zacks Investment Research employs several proprietary methodologies and techniques to make it easier for investors to detect top stocks at any given point in time. Let’s take a look at a recent example of how to put the various Zacks Ranking systems to good use in today’s market environment.
One approach to extracting the most value out of what Zacks has to offer is to implement a top-down approach. With this investment tactic, we’ll start with leading stock market industry groups that are identified by our Zacks Industry Rank system.
Zacks Industry Rank: Improve Your Stock-Picking Success
A plethora of historical research studies have consistently shown that approximately half of a stock’s price appreciation is due to its industry grouping. Investing in stocks within leading industry groups provides a constant ‘tailwind’ to our success. We can use the Zacks Industry Rank to locate stocks with the most potential to outperform in the future.
Our industry ranking system sorts companies into more than 250 industry groups. The Zacks Industry Rank is calculated by averaging the Zacks Rank for all individual stocks within a specific industry. A recent 10-year backtest has shown that stocks within the top 50% of all Zacks Ranked Industries outperformed the bottom half by a factor of more than 2 to 1.
Image Source: Zacks Investment Research
Once the top industry groups are identified, we can peel back the curtain to find stocks with the highest Zacks Rank. In our example, we’re going to target the Zacks Banks-Foreign industry group which ranks in the top 4% of all industries.
Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months. By focusing on top stocks within leading industry groups, we can dramatically improve our odds of success. Also note that this group has steadily outperformed the market to kick off the New Year:
Image Source: Zacks Investment Research
Despite the impressive move, this group remains relatively undervalued:
Image Source: Zacks Investment Research
Zacks Rank: Locate Stocks with the Best Profit Potential
The Zacks Industry Rank is linked to our ranking system for individual stocks – the Zacks Rank. The Zacks Rank harnesses the power of earnings estimate revisions, which history has shown is the most powerful force impacting stock prices over time. Stocks with rising earnings estimate revisions have significantly outperformed the S&P 500 year after year. This ranking system uses five different ranks: #1 (Strong Buy), #2 (Buy), #3 (Hold), #4 (Sell), and #5 (Strong Sell).
The Zacks Rank has made the process of identifying top stocks with improving earnings estimates simple (and very profitable). Since 1988, Zacks Rank #1 (Strong Buy) stocks have generated a 24.28% annual return versus the 10.51% annual return for the S&P 500. Zacks Strong Buy stocks have also outperformed the S&P 500 in 26 out of the last 31 years that we have been tracking the data. Only the top 5% of stocks receive the coveted Zacks Rank #1 (Strong Buy) rating.
Our top-down process narrows the investable universe, starting with the Zacks Banks-Foreign industry (top 4%). Let’s take a look at a leading Zacks Rank #1 (Strong Buy stock) contained within this top industry.
UBS Group AG (UBS - Free Report)
UBS Group AG provides financial advice and solutions to institutional, corporate, and private clients globally. The company offers a host of financial-related services such as personal banking, investment advice and solutions, lending, wealth planning, asset allocation, and investment banking. UBS was founded in 1862 and is headquartered in Zurich, Switzerland.
UBS has surpassed earnings estimates in three of the past four quarters, with an average earnings surprise of 16.6%. The financial firm most recently reported fourth-quarter earnings back in January of $0.50/share, beating the Zacks Consensus Estimate of $0.37 by 35.14%. The company’s strong capital position and efficiency initiatives will likely continue to aid profitability.
Shares have risen in stride, advancing more than 55% off the October bottom and recently hitting a 52-week high.
UBS is a Zacks Rank #1 (Strong Buy) that has witnessed improving earnings estimate revisions. Looking into the current year, analysts have raised their 2023 EPS estimates by 5.85% in the past 60 days. The Zacks Consensus Estimate now stands at $2.17/share.
Image Source: Zacks Investment Research
Employing a top-down approach utilizing the various Zacks Ranking systems can help investors find leading stocks like UBS more easily. As we move further into 2023, be sure to take advantage of all that Zacks has to offer.