- (1:00) - Explaining The Zacks Ranking System
- (9:35) - 3 Weaknesses To Watch Out For
- (15:45) - Breaking Down A #5 Strong Sell: Nvidia
- (20:00) - Tracey’s Top Stock Picks
- (29:15) - Episode Roundup: AAPL, NVDA, CFX, GBX, KBR
Welcome to Episode #124 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
That includes discussing the Zacks Ranking system and including that in all of the screens that are in the episodes.
But many listeners who have found the podcast may not have any idea what the Zacks Rank is or how it works. Why should you care about the Zacks Rank?
What’s the Zacks Rank?
It’s a stock ranking system that uses the power of earnings estimates. When an analyst raises an earnings estimate, or cuts one, it can usually move a stock higher, or lower.
Think of Apple (AAPL - Free Report) as an example. Even before Tim Cook cut first quarter guidance on Jan 2, the analysts were already lowering full year estimates and this was impacting the share price to the downside.
Zacks collects data from over 3000 analysts at 150 brokerages to compile its consensus estimates.
The Rank is then based off of this data.
It ranks stocks from 1-5 with #1 Rank being the highest. That’s a “Strong Buy.” Only 5% of all stocks Zacks covers are in this category.
The lowest Rank is #5, a “Strong Sell.” That is also just 5% of all stocks.
Currently, some of the most popular stocks, like NVIDIA (NVDA - Free Report) are Zacks Rank #5 (Strong Sells).
The Zacks Rank is based on four factors: Agreement, Magnitude, Upside, Surprise.
What it is NOT: a bunch of Zacks analysts sitting in a room “downgrading” or “upgrading” a stock.
But the Zacks Rank can change daily, as estimate revisions are constantly happening.
Using the Zacks Rank to Screen for Value Stocks
Combining the power of the Zacks Rank with other fundamentals is a good way to screen for companies with rising earnings estimates.
After all, who wants a company with falling earnings?
In this episode, the Zacks Rank of #1 (Strong Buy) and #2 (Buy) was combined with the classic value fundamentals such as the P/E, P/S ratio, P/B, P/CF and PEG.
This would be a narrow screen thanks to all of those value fundamentals but the Zacks Rank would narrow it further. The Zacks Rank #1 and #2 stocks are just 20% of Zacks coverage universe.
This screen returned 24 stocks.
3 Value Stocks with Top Zacks Ranks
1. Colfax (CFX - Free Report) is a diversified tech company that provides fabrication technology and air and gas handling products to customers around the world. It appears to be in a transition though as it’s trying to deleverage at the same time as it bought DJO Global, which makes orthopedic solutions, for $3.15 billion. Shares are down 47% in the past year but are cheap with a P/E of just 9.3. It’s a Zacks Rank #2 (Buy).
2. Greenbrier (GBX - Free Report) manufactures and leases railcars. Shares fell 27% over the last year on fears about a slowing US economy. Shares are dirt cheap now with a P/S ratio of just 0.5 and a PEG of 0.96. It’s expected to report earnings in early January 2019. Greenbrier is a Zacks Rank #2 (Buy).
3. KBR Inc. (KBR - Free Report) provides services and technologies in the government and hydrocarbon sectors. That includes engineering, testing, and consulting work. Shares plunged 23% in the last year and are really cheap. It has a P/B ratio of just 1.3 and a P/S ratio of 0.5. A P/B under 3.0 usually indicates value as does a P/S ratio under 1.0. KBR is a Zacks Rank #2 (Buy).
What else should you be looking for to screen for the best value stocks?
Find out all about the Zacks Rank, and more, on this week’s episode.
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