Building a successful investment portfolio takes skill and hard work, no matter if you're a growth, value, income, or momentum-focused investor.
But how do you find the right combination of stocks? Funding your retirement, your kids' college tuition, or your short- and long-term savings goals certainly requires significant returns.
Enter the Zacks Rank.
What is the Zacks Rank?
The Zacks Rank, which is a unique, proprietary stock-rating model, employs earnings estimate revisions, or changes to a company's earnings expectations, that makes building a winning portfolio easier.
There are four main factors behind the Zacks Rank: Agreement, Magnitude, Upside, and Surprise.
Agreement is the extent to which all brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of analysts revising their estimates higher, the better chance the stock will outperform.
Magnitude is the size of the recent change in the consensus estimate for the current and next fiscal years.
Upside is the difference between the most accurate estimate, which is calculated by Zacks, and the consensus estimate.
Surprise is made up of a company's last few quarters' earnings per share surprises; companies with a positive earnings surprise are more likely to beat expectations in the future.
These four factors are assigned a raw score that's recalculated every night, which is then compiled into the ranking system. Stocks are classified into five groups using this data, ranging from "Strong Buy" to "Strong Sell."
The Power of Institutional Investors
The Zacks Rank also allows individual investors, or retail investors, to benefit from the power of institutional investors.
Institutional investors are responsible for managing the trillions of dollars invested in mutual funds, hedge funds, and investment banks. Research has shown that these investors can and do move the market due to the large amount of money they deal with, and thus, the market tends to move in the same direction as them.
In order to figure out the fair value of a company and its shares, these investors will build valuation models focused on earnings and earnings expectations. Because if you raise estimates for the bottom line, it creates a higher fair value for a company.
With these changes, institutional investors will act, usually buying stocks with rising estimates and selling those with falling estimates. An increase in earnings expectations can potentially lead to higher stock prices and bigger gains for the investor.
Because it can take a long time for an institutional investor to build a position -- sometimes weeks, if not months -- retail investors who get in at the first sign of upward revisions have a distinct advantage over these larger investors, and can benefit from the expected institutional buying that will follow.
Not only can the Zacks Rank help you take advantage of trends in earnings estimate revisions, but it can also provide a way to get into stocks that are highly sought after by professionals.
How to Invest with the Zacks Rank
The Zacks Rank is known for transforming investment portfolios. In fact, a portfolio of Zacks Rank #1 (Strong Buy) stocks has beaten the market in 26 of the last 32 years, with an average annual return of +25.41%.
Moreover, stocks with a new #1 (Strong Buy) ranking have some of the biggest profit potential, while those that fell to a #4 (Sell) or #5 (Strong Sell) have some of the worst.
Let's take a look at
Regeneron (, which was added to the Zacks Rank #1 list on July 21, 2021. REGN Quick Quote REGN - Free Report)
Tarrytown, NY-based Regeneron is a biotechnology company focused on the discovery, development and commercialization of treatments targeting serious medical conditions. The company’s portfolio boasts nine marketed drugs — Eylea (for several eye diseases), Dupixent (asthma, atopic dermatitis, and chronic rhinosinusitis with nasal polyposis), Praluent (heterozygous familial hypercholesterolemia), Kevzara (moderately-to-severely active rheumatoid arthritis), Libtayo (metastatic or locally advanced cutaneous squamous cell carcinoma, locally advanced first-line non-small cell lung cancer ("NSCLC"), and locally advanced basal cell carcinoma ("BCC")}, Evkeeza (homozygous familial hypercholesterolemia, Inmazeb (Ebola) Arcalyst and Zaltrap.
Two analysts revised their earnings estimate upwards in the last 60 days for fiscal 2021. The Zacks Consensus Estimate has increased $0.47 to $50.03 per share. REGN boasts an average earnings surprise of 14.4%.
Earnings are forecasted to see growth of 59% for the current fiscal year, and sales are expected to increase 43.3%.
Additionally, REGN has climbed higher over the past four weeks, gaining 10%. The S&P 500 is up 3.9% in comparison.
With a #1 (Strong Buy) ranking, positive trend in earnings estimate revisions, and strong market momentum, Regeneron should be on investors' shortlist.
If you want even more information on the Zacks Ranks, or one of our many other investing strategies, check out the
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