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The Zacks Rank

 

Given the sheer number of Earnings Estimate Revisions made on daily basis, it can be very difficult to determine which stocks to buy and which ones to avoid. The Zacks Rank solves this problem by helping investors harness the power of earnings estimate revisions to invest more successfully.

 

The Zacks Rank is a proprietary quantitative model that uses trends in earnings estimate revisions and EPS surprises to classify stocks into five groups:

 

#1 = Strong Buy

#2 = Buy

#3 = Hold

#4 = Sell

#5 = Strong Sell

 

At all times, the Zacks Rank is proportionately applied to the approximate 4,400 stocks for which sell-side analyst estimates are available. In other words, regardless of how strong the economy is, only the very top 5% of stocks receive the coveted designation of Zacks #1 Rank. More importantly, at all times, approximately the same number of stocks are assigned a Zacks #5 Rank as are assigned a Zacks #1 Rank.

 

This equality between "Strong Buy" and "Strong Sell" recommendations makes the Zacks Rank a much more reliable indicator than brokerage recommendations. Brokerage recommendations are biased towards buy ratings, with many sell-side analysts reluctant to issue a "sell" recommendation.

 

Zacks Rank % of Stock Universe
(Approximate)
# of Stocks Recommendation
1 5% 220 Strong Buy
2 15% 660 Buy
3 60% 2640 Hold
4 15% 660 Sell
5 5% 220 Strong Sell

 

The majority of stocks are assigned Zacks Rank #3, meaning their trend in Earnings Estimate Revisions is inline with the overall market.

 

"I don't buy a stock unless Zacks says it''s a Strong Buy"

Tim Mally

Madison, WI

 

Next: The Four Factors

Previous: Consensus Estimates

Zacks Rank Guide Table of Contents

(A version of this guide formatted for printing is also available.)

Zacks Research is Reported On:

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