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Building a Winning Portfolio for 2020

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Stocks have been on a tear lately, with 2019 on track to be the best year in the market since 2013. But many investors didn't enjoy such strong returns in their own portfolios.

Why is that?

The simple answer is that they were in the wrong stocks because most investors typically invest without a clear roadmap. The rising tide of a broad rally will produce plenty of green arrows in most portfolios. But that is not enough to come out ahead of the market in uncertain times.

It is reasonable to be optimistic about the investment environment in the New Year in light of how good it has been lately. There are no doubt some great opportunities in the market, but the New Year also brings its share of challenges. Thus now is exactly the time to make those decisions to put your portfolio on a sound footing for the year ahead. I hope the ideas in this article will help you do just that. 

This May Not Be For You

If you are someone who has a consistent stock selection system that helped you come ahead of the market in 2019 and the preceding years, then you probably don't need our advice. Feel free to stop reading at this stage.

With the rest of you, I would like to share the investment process that we rely on here at Zacks, which makes use of 5 different factors to build a winning portfolio. Each one of these factors individually will help you pick good stocks. But putting all of them together gives you a significant edge over others in stock market investing.

This process lies at the heart of our Zacks Top 10 Stocks for 2020 service which will be released on Thursday, January 2nd and has produced strong returns in recent years. In 2019, the portfolio returned +25.6% through November 30th, matching the S&P 500 index. The Top 10 portfolio returned +13.95% in 2018 when the market as a whole was down. Since 2012, the portfolio has produced a cumulative return of +303.2% vs. +160.5% for the S&P 500 index.  

A random selection of good stocks, without an overarching outlook for the market, will not give you the desired results. The portfolio is essentially the execution of your outlook for the market. For the Top 10 Stocks for 2020, we started with the market outlook and then used these factors to build the portfolio.

More . . .


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Just Released: Zacks Top 10 Stocks for 2020

From a universe of more than 4,000 stocks, Director of Research Sheraz Mian has just released the 10 best buy-and-holds for the coming year.

His process consistently beats the market. The 2019 Zacks Top 10 Stocks portfolio is up +25.4% through November 30th with gains as high as +97.7%. What's more, from 2012 through November 2019 while the market boomed +160.5%, his Top 10s reached an even more stellar +303.3%.

With most Top 10 portfolios, you can check them out now, next week or next month. By contrast, these stocks are time-sensitive and you can still be among the first to see them now when their potential upside is at its greatest.

See Stocks Now >>

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The 5 Elements of the Zacks Method for Investing

1) Valuation - There is plenty of empirical evidence showing that stocks with low valuation will outperform the market over the long haul. It's not easy to find 'cheap' stocks after the market's impressive run, but we look for companies that are trading with low Price-to-Earnings [P/E] and Price-to-Book [P/B] multiples relative to their peers and their own history.

2) Management Effectiveness - It is very important to get a sense for how effective the company's management is in utilizing the resources available to them. This can be done a number of different ways, but our research shows that Return on Equity [ROE] does a good job of capturing this attribute. So we seek out companies generating ROEs that are superior to their industry peers.

3) Recent Analyst Upgrades - Our research also clearly shows that stocks that have recently received a recommendation upgrade from brokerage analysts will continue to outpace the market. Most of that benefit is felt in the short run. However, quite often a stock that receives one upgrade is likely to get more in the future, which keeps pushing the stock higher.

4) Best Industries - Even the best-looking stock will underperform the market if it's in an out-of-favor industry. That is why we overweight stocks from the best industries and sectors. And there is no better guide to choosing the right groups than the Zacks Industry Rank, which focuses on the earnings estimate revisions for all the stocks in the industry.

5) Timeliness - There is no better timeliness indicator than the Zacks Rank, which has produced annual returns in excess of +24% annually since 1988 for Zacks Rank #1 (Strong Buy) stocks. We look for #1 and #2 Ranked stocks, but will consider #3 Ranked stocks if they show the potential for upgrade. These signals tell us that now is a good time to get into the stock.

Zacks has long been known for harnessing the power of earnings estimate revisions to foretell stock prices. No surprise then that two of the five factors make use of this powerful driver.

How to Find This Information?

The first three of these elements - valuations, ROEs and analyst upgrade - are free and widely available from Zacks.com and other investment websites. If you just concentrated on these elements, you would be much better off than you are now.

The last two elements, Industry Rank and Zacks Rank, are proprietary to Zacks Investment Research and only available through our premium subscription services. Adding these two elements to the free ones above will put an almost unfair advantage in your hands.

The Best Way to Tap Into All 5 Elements 

You can do it through our Zacks Top 10 Stocks for 2020 service. These stocks have been hand selected to outperform the market, which is amply borne out by its recent performance of double-digit returns in each of the last three years.

The New Year brings a host of opportunities for the investors who know where to look.

Remember, in 2019, we had gains as high as +97.7% and matched the market’s impressive performance through the end of November. The portfolio returned +13.95% in 2018 when the market as a whole was down.

The Zacks Top 10 Stocks for 2020 has just been released and you’re invited to be among the first investors to see the stocks. But please note, the best way to tap into this long-term investing opportunity is to get in on the ground floor. These picks are time-sensitive, and the sooner you invest, the more you figure to gain.

Get access to Zacks Top 10 Stocks for 2020 now >>

Happy Investing,

Sheraz Mian

Sheraz Mian is the Director of Research. He determines which valuable data to use for detecting the best stocks and funds. He is a contributor for Zacks Equity Research and Earnings Analysis, and is also the Editor of Zacks Top 10 Stocks.