How to Find Strong Retail and Wholesale Inventory Using Zacks Ranking

WWhether you are an investor focused on growth, value, income, or momentum, building a successful investment portfolio takes skill, research and a bit of luck.

But what’s the best way to find the right mix of stocks? Because funding things like your retirement, your children’s school fees, or your short- and long-term savings goals will certainly require significant returns.

Enter the Zacks rank.

What is the Zacks rank?

A unique and proprietary stock rating model, Zacks Rank uses revisions to a company’s earnings estimates, or changes to a company’s earnings forecasts, to help investors create a winning portfolio.

There are four main factors behind Zacks’ ranking: Accord, Magnitude, Upside, and Surprise.

The deal is the extent to which all brokerage analysts revise their earnings estimates in the same direction. The higher the percentage of analysts revising their estimates, the better the chances that the stock will outperform.

Magnitude is the size of the recent change in consensus estimate for the current and next fiscal year.

The benefit is the difference between the most accurate estimate, which is calculated by Zacks, and the consensus estimate.

Surprise consists of surprises in a company’s earnings per share in recent quarters; companies with positive earnings surprise are more likely to exceed expectations in the future.

Each of these factors is assigned a raw score which is recalculated each night and then compiled into the Zacks leaderboard. Using this data, stocks are categorized into five groups, ranging from “Strong Buy” to “Strong Sell. “

The power of institutional investors

Zacks Rank also allows individual investors, or retail investors, to benefit from the power of institutional investors.

Institutional investors are the professionals who manage the trillions of dollars invested in mutual funds, investment banks, and hedge funds. Studies have shown that these investors can and do move the market because of the large sums with which they invest. As a result, the market tends to move in the same direction as institutional investors.

In order to determine the fair value of a company and its stocks, institutional investors design valuation models that focus on earnings and earnings estimates. Because if you increase profit estimates then it creates a higher fair value for a company and its stock price.

With these changes, institutional investors will act, typically buying stocks with rising estimates and selling those with falling estimates. An increase in earnings expectations can potentially lead to higher stock prices and greater earnings for the investor.

Because it can take a long time for an institutional investor to build a position – sometimes weeks or even months – retail investors who enter at the first sign of upward revisions have a clear advantage over these large investors and can benefit. of the expected institutional purchases that will follow.

The Zacks Rankings can not only help you take advantage of earnings estimate revision trends, but it can also provide a way to access stocks that are highly sought after by professionals.

How to invest with the Zacks leaderboard

Zacks Rank is known to transform investment portfolios. In fact, a Zacks Rank # 1 (Strong Buy) stock portfolio has beaten the market in 26 of the past 32 years, with an average annual return of + 25.41%.

Additionally, stocks with a new # 1 (strong buy) ranking have some of the biggest profit potentials, while those that have fallen to a # 4 (sell) or # 5 (strong sell) have some of the highest potential for profit. worse.

Let’s take a look at Sally Beauty (SBH), who was added to Zacks Rank # 1 list on May 12, 2021.

Based in Denton, Texas, Sally Beauty Holdings, Inc. is an international specialty retailer and distributor of professional beauty products. It is one of the largest distributors of beauty products in the United States.

Two analysts have revised their earnings estimate upward in the last 60 days for fiscal 2021. Zacks’ consensus estimate has risen from $ 0.12 to $ 2.33 per share. SBH posted an average surprise profit of 37.8%.

Analysts expect profits to rise 91% for the current fiscal year, with expected revenue up 7.8%.

Additionally, SBH has climbed higher over the past four weeks, gaining 6.4%. The S&P 500 is up 2.9% in comparison.

Final result

With a # 1 ranking (strong buy), a positive trend in earnings estimate revisions and strong market momentum, Sally Beauty is expected to be on the shortlist of investors.

If you want even more information about Zacks rankings or any of our many other investing strategies, check out the Zacks Education home page.

Discover the best actions of the day

Our private Zacks # 1 ranking list, based on our quantitative Zacks Rank stock rating system, has more than doubled the S&P 500 since 1988. Applying the Zacks Rank in your own trading can increase your returns on investment when trading. any next transaction. View Today’s Zacks # 1 Ranking List >>

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

About Timothy Cheatham

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