IRegardless of your age or experience: taking full advantage of the stock market and investing with confidence are common goals for all investors. Luckily, Zacks Premium offers several different ways to do both.
With daily Zacks Ranking and Zacks Industry Ranking updates, full access to the Zacks #1 Ranking List, Stock Research Reports, and Premium Stock Screens, the Research Service can help you become a smarter and more confident investor.
Zacks Premium also includes Zacks style scores.
What are Zacks style scores?
Developed alongside Zacks Rank, Zacks Style Scores are a group of complementary indicators that help investors select stocks with the best chance of beating the market over the next 30 days.
Each stock is assigned a letter grade of A, B, C, D or F based on its value, growth and dynamic qualities. With this system, an A is better than a B, a B is better than a C, and so on, meaning the higher the score, the better the chance the stock will outperform.
Style Scores are divided into four categories:
Value Rating
For value investors, it’s about finding good stocks at good prices and finding out which companies are trading at fair value before the market takes a swing. The Value Style Score uses ratios such as P/E, PEG, Price/Sales, Price/Cash Flow and a host of other multiples to help select the most attractive and discounted stocks.
Growth score
Growth-oriented investors are more concerned with a stock’s future prospects, as well as a company’s overall financial health and strength. Thus, the Growth Style Score analyzes characteristics such as expected and historical earnings, sales and cash flow to find stocks that will experience sustainable growth over time.
Momentum Score
Aggressive investors, who live by the saying “the trend is your friend”, are more interested in taking advantage of rising or falling trends in a stock’s price or earnings prospects. Using the week-to-week price change and monthly percentage change in earnings estimates, among other factors, the Momentum Style Score can help determine favorable times to buy high-momentum stocks.
VGM score
What if you like to use all three types of investments? The VGM Score is a combination of all Style Scores, making it one of the most comprehensive metrics to use with the Zacks Ranking. It rates each stock based on their combined weighted styles, helping to target companies with the most attractive value, the best growth forecasts and the most promising momentum.
How Style Scores Work with Zacks Ranking
The Zacks Ranking, which is a proprietary stock rating model, uses revisions to earnings estimates, or changes to a company’s earnings forecast, to help build a winning portfolio.
Investors can count on the success of Zacks Rank, with #1 stocks (Strong Buy) producing an unmatched average annual return of +25.41% since 1988, more than double the performance of the S&P 500. But the model values a large number of stocks, and there are over 200 companies with a strong buy rank, plus another 600 with a #2 (buy) rank, every day.
But it can seem overwhelming to choose the right stocks for you and your investment goals with over 800 top-rated stocks to choose from.
This is where Style Scores come in.
To have the best chance of big returns, you’ll always want to consider stocks with a Zacks #1 or #2 ranking that also have A or B style scores, which will give you the greatest likelihood of success. If you’re looking for stocks with a #3 (Hold) rank, it’s important that they also have A or B scores to ensure the most upside potential.
As mentioned above, the scores are designed to work with the Zacks ranking, so any changes in a company’s earnings outlook should be a deciding factor when deciding which stocks to buy.
Here’s an example: a stock with a #4 (sell) or #5 (strong sell) rating, even one with style scores of A and B, still has a downward earnings outlook, and a higher chance that its price will also decrease.
So the more stocks you have with a rank of #1 or #2 and scores of A or B, the better.
Stock to watch: original parts (GPC)
Genuine Parts Company, based in Atlanta, GA, distributes automotive and industrial replacement parts and materials, as well as commercial products in the United States, Canada, Mexico, Australia, New Zealand, Singapore, Indonesia, France, UK, Germany and Poland. As of December 31, 2019, it employed approximately 55,000 people worldwide. Currently, the Company operates through two segments:
GPC is a #3 (Hold) on the Zacks rank, with a VGM score of A.
Additionally, the company could be a top pick for growth investors. GPC has a growth style score of A, forecasting year-over-year earnings growth of 10.3% for the current fiscal year.
For fiscal 2022, five analysts have revised their earnings estimate higher in the past 60 days, and Zacks’ consensus estimate rose $0.30 to $7.62 per share. GPC shows an average earnings surprise of 15%.
With a strong Zacks ranking and top VGM growth and style scores, GPC should be on the investor shortlist.
Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could step in at any time.
This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.
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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.