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. As simple as it sounds, it is never easy to find objectively 'cheap' stocks even after the type of market we have recently witnessed. 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. We say 'reasonable' instead of 'low' because many 'low' multiples are simply 'value traps' and the analysis has to be done in the context of prevailing and expected interest rates. 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 overweigh 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 of +24.48% 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. Where to Find This Lucrative 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. The best way to tap into all 5 elements right now is through our diverse, long-term portfolio, Zacks Top 10 Stocks for 2023. I hand-selected these stocks to outperform the market and produce strong returns in good times and bad. Since 2012 when I started managing this service, the Top 10 portfolios tripled the S&P 500. While the market gained +270.2%, Zacks Top 10 Stocks skyrocketed +835.6%.¹ Here's a quick preview of three of the new picks I've lined up: • | Fitness beverage company is floating on $727 million in cash, and it's debt-free. A recent distribution deal with an industry giant looks to accelerate its double and triple-digit growth in each of the last 6 quarters. | • | This is my play on agriculture, a sector in urgent and ever-increasing demand, especially in developing countries. Products for greater crop yields are driving net sales and revenue skyward. | • | Spending for education systems was up even before the pandemic. I'm targeting a company with a sterling reputation and best-in-class products. Sweeping past many competitors, it's generating a ton of cash flow. | Overall, the portfolio is diversified with 7 more stocks from a variety of industries. You're invited to be among the first investors to see Zacks Top 10 Stocks for 2023 when the portfolio is released at 11:00 a.m. ET on Tuesday, January 3. And please remember, 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 2023 fully take into account what lies ahead. Get access to Zacks Top 10 Stocks for 2023 now » Happy Investing, Sheraz Mian
Sheraz Mian is the Director of Research. He determines which valuable data to use in finding 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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