For new and old investors, taking full advantage of the stock market and investing with confidence are common goals. Zacks Premium provides lots of different ways to do both.
Featuring daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, the research service can help you become a smarter, more self-assured investor.
It also includes access to the Zacks Style Scores.
What are the Zacks Style Scores?
The Zacks Style Scores is a unique set of guidelines that rates stocks based on three popular investing types, and were developed as complementary indicators for the Zacks Rank. This combination helps investors choose securities with the highest chances of beating the market over the next 30 days.
Based on their value, growth, and momentum characteristics, each stock is assigned a rating of A, B, C, D, or F. The better the score, the better chance the stock will outperform; an A is better than a B, a B is better than a C, and so on.
The Style Scores are broken down into four categories:
For value investors, it's all about finding good stocks at good prices, and discovering which companies are trading under their true value before the broader market catches on. The Value Style Score utilizes ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to help pick out the most attractive and discounted stocks.
While good value is important, growth investors are more focused on a company's financial strength and health, and its future outlook. The Growth Style Score takes projected and historic earnings, sales, and cash flow into account to uncover stocks that will see long-term, sustainable growth.
Momentum traders and investors live by the saying "the trend is your friend." This investing style is all about taking advantage of upward or downward trends in a stock's price or earnings outlook. Employing factors like one-week price change and the monthly percentage change in earnings estimates, the Momentum Style Score can indicate favorable times to build a position in high-momentum stocks.
What if you like to use all three types of investing? The VGM Score is a combination of all Style Scores, making it one of the most comprehensive indicators to use with the Zacks Rank. It rates each stock on their combined weighted styles, which helps narrow down the companies with the most attractive value, best growth forecast, and most promising momentum.
How Style Scores Work with the Zacks Rank
A proprietary stock-rating model, the Zacks Rank utilizes the power of earnings estimate revisions, or changes to a company's earnings outlook, to help investors create a successful portfolio.
#1 (Strong Buy) stocks have produced an unmatched +25.41% average annual return since 1988, which is more than double the S&P 500's performance over the same time frame. However, the Zacks Rank examines a ton of stocks, and there can be more than 200 companies with a Strong Buy rank, and another 600 with a #2 (Buy) rank, on any given day.
But it can feel overwhelming to pick the right stocks for you and your investing goals with over 800 top-rated stocks to choose from.
That's where the Style Scores come in.
You want to make sure you're buying stocks with the highest likelihood of success, and to do that, you'll need to pick stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you like a stock that only as a #3 (Hold) rank, it should also have Scores of A or B to guarantee as much upside potential as possible.
As mentioned above, the Scores are designed to work with the Zacks Rank, so any change to a company's earnings outlook should be a deciding factor when picking which stocks to buy.
Here's an example: a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one with Style Scores of A and B, still has a downward-trending earnings outlook, and a bigger chance its share price will decrease too.
Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.
Stock to Watch: NMI Holdings ( NMIH Quick Quote NMIH - Free Report)
Headquartered in Emeryville, CA, NMI Holdings was incorporated in May 2011 and began start-up operations in 2012. NMI Holdings wrote its first MI policy in 2013.
NMIH is a #3 (Hold) on the Zacks Rank, with a VGM Score of A.
Additionally, the company could be a top pick for growth investors. NMIH has a Growth Style Score of B, forecasting year-over-year earnings growth of 17.2% for the current fiscal year.
One analysts revised their earnings estimate upwards in the last 60 days for fiscal 2022. The Zacks Consensus Estimate has increased $0 to $3.20 per share. NMIH boasts an average earnings surprise of 3%.
With a solid Zacks Rank and top-tier Growth and VGM Style Scores, NMIH should be on investors' short list.