We talk all the time about how the Zacks Rank can get you into the winningest stocks. In this article (and future 'Zacks Rank Anatomy of Success' articles), we'll go beyond just telling you how the Zacks Rank can get you into the best performers, but actually show you, on a chart, so you can see for yourself.
Whether it's a widely known large-cap stock, little known small-cap stock or somewhere in between, the steps to success are the same.
And while the Zacks Rank is a great short-term indicator for finding the most profitable opportunities over a 1-3 month period, you'll also see (as illustrated below) how it can keep you in on the strongest ones for even bigger gains.
Example: Texas Capital Bancshares
Texas Capital Bancshares (TCBI - Analyst Report) is a mid-cap blend (growth and value) stock in the Financial Industry. As a regional bank headquartered in Texas, it's not one of those stocks with a national presence or name recognition. In fact, if you didn't live in Texas, you'd be hard pressed to have ever heard of it.
But many of your favorite stocks were likely new to you at some point. The trick is getting these onto your radar screen so you become aware of them. And having the confidence that when they do, they are worthy of taking a position.
One of the best ways to tell if a stock is hot or if it's not is to see if it has a Zacks #1 Rank and rising earnings estimates.
On January 6, 2012, TCBI was identified as one of the hot ones when it received a Zacks #1 Rank (Strong Buy). Even as many investors were still shunning financial stocks, this one distinguished itself from the others and was poised to outperform.
Between 1/6/12, when it was trading at $31.77, and 8/31/12, when it closed at $46.02, TCBI rewarded investors with a 44.85% gain in just 8 short months compared to the market's 10.08%.
During that time, their 12 Month Forward Earnings Estimates climbed from $2.24 to $3.12, which was a 39.28% increase and the clear catalyst for TCBI's commensurately stellar gains.
Simply put, when earnings estimates are going up, the stock should go up as well. Even when the broader market is going down, the importance of rising earnings estimates (read increasingly positive outlook) when the rest of the market's outlook is far less certain, can help the strongest ones soar above it all.
And the Zacks Rank is your first clue to spotting them.
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