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Stocks have done exceptionally well lately, with the S&P 500 index producing a double-digit return in the pandemic-plagued 2020 and up almost +70% from the March lows. 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, which should be the goal of every investor. It is reasonable to be optimistic about the investment environment in the New Year in light of the expected resumption of normal economic and human activities as the ongoing vaccination exercise reaches a critical mass. The policy bias from both the fiscal as well as monetary sides should also remain expansionary and favorable to the market. In short, we can look ahead to some great investment opportunities in the days to come. But the New Year will also bring its share of challenges that could hold you back from fully benefiting from the opportunities. 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 out ahead of the market in 2020 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 which has produced strong returns in recent years. The portfolio beat the market by a mile in 2020, returning +93.47% vs. the +12.02% for the S&P 500 index.¹ In past years, the portfolio returned +25.94% in 2019, +13.95% in 2018 and has maintained an average annual return of +27.69% since its inception in 2012. And now, Zacks Top 10 Stocks for 2021 is about to be made available. 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 2021, we started with the market outlook and then used these factors to build the portfolio. More . . . | ||||
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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 valuations 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 at reasonable 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 upgrades 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 we do this with the Zacks Industry Rank, which focuses on the earnings estimate revisions for all the stocks in the industry. Our research shows that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1. 5) Timeliness - There is no better timeliness indicator than the Zacks Rank, which has produced average annual returns of +24.4% since 1988 for Zacks Rank #1 (Strong Buy) stocks. We look for stocks with a Zacks Rank of 1 and 2, but will consider Zacks Rank #3 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 the last two factors make use of this powerful driver. How to Find This Information? The first three of these elements 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 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. And it's why the Zacks Top 10 Stocks portfolio has performed so well year after year, why it skyrocketed in 2020, and why it's poised to do it again in 2021. Winning Combination The best way to tap into all 5 elements right now is through our Zacks Top 10 Stocks for 2021 portfolio. 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. In fact, this stock-selection process has stood the test of time, producing strong returns in good times and bad. Since inception in 2012, the annual portfolios have returned +682.3% versus the S&P 500's +199.9%. And Zacks Top 10 Stocks for 2020 is beating the market 7.8X over. It's up +93.5% with individual gains as high as +396.8%.¹ You're invited to be among the first investors to see Zacks Top 10 Stocks for 2021 when the portfolio is released at 11:00 a.m. ET on Monday, January 4. 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. The New Year brings a host of challenges and opportunities for the investing public. But rest assured that the stocks we have picked for 2021 fully take into account what lies ahead. Get access to Zacks Top 10 Stocks for 2021 now » Happy Investing,
Sheraz Mian is the Director of Research. He determines which valuable data to use to assess winning stocks and funds. He is a contributor for Zacks Equity Research and Earnings Analysis, and is also the Editor of Zacks Top 10 Stocks. | ||||
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| ¹ As of market close 12/18/2020. The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer. Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or US investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through November 30, 2020. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank #1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
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