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How to Use the Zacks Rank to Pick Stocks

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  • (0:30) - Zacks Ranking System: How does It Work?
  • (5:00) - Misunderstandings of the Zacks Rank
  • (9:50) - The Building Blocks To The Zacks Ranking System
  • (14:00) - Ranking Changes: Specific Stock Examples
  • (20:20) - How To Best Use The Zacks Rank
  • (27:00) - When Do Next Years Estimates Effect The Rank?
  • (36:00) - Episode Roundup:

Welcome to Episode #95 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

In this episode, Tracey is joined by Sheraz Mian, Zacks Director of Research, to discuss the Zacks Rank.

Finally, after podcasting for nearly 2 years, Tracey is tackling the most basic of Zacks investing principles.

You might have seen the Zacks Rank mentioned in an investing article on Yahoo Finance or someone brought it up in a discussion on Stocktwits.

But what IS it exactly?

Definition of the Zacks Rank

The Zacks Rank is a short-term stock recommendation of 1 to 3 months which ranks stocks from #1, which is a “Strong Buy”, to #5, which is a “Strong Sell”.  

Zacks ranks about 4400 stocks daily using analyst earnings estimates.

Sheraz and Tracey discuss what goes into the Zacks Rank, how it works, and the pros and cons of using it.

If you’ve ever had questions about the Zacks Rank, then this is must-listen podcast.

Examples of Using the Zacks Rank

1.       In the summer of 2017, Ichor Holdings (ICHR - Free Report) went from a Zacks #1 (Strong Buy) and sank quickly to a Zacks #4 (Sell), moved to a #3 (Hold) and is now a #1 (Strong Buy) again. How can a stock go from a #1 to a #4 the next day?

2.       Oclaro (OCLR - Free Report) was a #3 (Hold) for a couple of months until it dropped to a #4 (Sell) in August. Why the drop and what are the estimates telling us?

3.       Amazon (AMZN - Free Report) has been a #5 (Strong Sell) several times this year. How can it be a Strong Sell when the stock has been moving higher?

4.       Tencent (TCEHY - Free Report) is both a foreign stock, as it’s a Chinese Internet and social media company, and it only has one analyst estimate on Sheraz discusses the quirks of the Zacks Rank and what happens when there are only a few estimates in the data.

5.       Applied Optoelectronics (AAOI - Free Report) is a Zacks Rank #1 (Strong Buy) but the shares are off 36% in the last month on worries about the transition from 40G to 100G. For 2017, 2 estimates have been raised and 2 have been cut in the last 30 days. However, the consensus has risen. The Zacks Rank is based on the analyst estimates. What happens if they don’t get it right?

Every trading system has its quirks. Zacks is open about what works, and what doesn’t, with the Zacks Rank.

To find out more about the limitations watch this video with Zacks’ Steve Reitmeister.

What else should you know about the Zacks Rank and using it to find stocks?

Tune into this week’s podcast to find out.

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