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The Difference between Average Brokerage Recommendation (ABR) and the Zacks Rank
Zacks provides the average brokerage recommendation (ABR) for thousands of stocks for most of the leading investment web sties. The ABR is the calculated average of the actual recommendations (strong buy, hold, sell etc) made by the brokerage firms for a given stock. The ABR is typically displayed with decimals (e.g. 1.52) versus the Zacks Rank, which is only shown in whole numbers (e.g. 1, 2, 3, etc.).
Although the ABR is displayed in a range of 1-5, it should not be confused as having any similarity to the Zacks Rank. The ABR is solely based on brokerage recommendations. Analysts employed by brokerage firms have been and continue to be overly optimistic with their recommendations. For every "Strong Sell" recommendation, brokerage firms assign FIVE "Strong Buy" recommendations. Although brokerage recommendations may have some value, on average, they have not proven to be successful in directing investors to the stocks with the highest probabilities of rising in price.
In contrast, The Zacks Rank is a quantitative model that allows investor to harness the power of earnings estimate revisions. Furthermore, the Zacks Rank is applied proportionately across the universe of all stocks for which brokerage analysts provide earnings estimates for the current year. At all times, the same number of Zacks Rank #1 ("Strong Buy") and Zacks Rank #5 ("Strong Sell") rankings are assigned.
Since 1988, Zacks Rank #1 stocks have generated an average annual return of +24.53% versus just +2.00% for the Zacks Rank #5 stocks. This means that the Zacks Rank will help you identify the winners and avoid the losers in all market conditions.
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