BBuilding a successful investment portfolio takes skill and hard work, no matter if you are a growth, value, income or momentum investor.
But how do you find the right mix of actions? Funding your retirement, your children’s school fees, or your short- and long-term savings goals certainly require significant returns.
Enter the Zacks rank.
What is the Zacks rank?
Zacks Rank, which is a proprietary stock rating model, uses revisions to a company’s earnings estimates or changes to a company’s earnings forecasts, making it easier to build 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 factor is assigned a raw score, which is recalculated each night and compiled into the Zacks leaderboard. Using this data, stocks are categorized into five different groups: strong buy, buy, hold, sell, and 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 responsible for managing the trillions of dollars invested in mutual funds, hedge funds and investment banks. Research has shown that these investors can and do move the market because of the large amount of money they are dealing with, and therefore the market tends to move in the same direction as them.
These investors are known to design valuation models focused on earnings and earnings expectations to determine the fair value of a company and its stocks. If profit estimates are increased, it gives a higher value to a business.
With these changes, institutional investors will take action, 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.
Since it can often take weeks, or even months, for an institutional investor to build a position (given its size), the retail investors that come into play at the first sign of an upward revision in estimates of earnings have a clear advantage over these large investors and may benefit from 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 Horizon Therapeutics (HZNP), which was added to the Zacks Rank # 1 list on October 2, 2021.
Horizon Therapeutics plc, based in Dublin, Ireland, previously known as Horizon Pharma plc, is a biopharmaceutical company specializing in the manufacture of medicines for arthritis, pain, inflammatory diseases and orphan diseases. Horizon Therapeutics (Horizon) was formed in September 2014, after Horizon, and Vidara acquired private Irish specialty pharmaceutical company Vidara Therapeutics International Ltd. through a reverse merger. On May 2, 2019, shareholders approved the company’s name change to Horizon Therapeutics. The move responds to the company’s long-term strategy to develop and commercialize innovative drugs for rare diseases, which currently have very few effective treatment options.
Two analysts have revised upward their estimate of earnings over the past 60 days for fiscal 2021. Zacks’ consensus estimate rose $ 0.21 to $ 4.67 per share. HZNP posts an average profit surprise of 29.2%.
Analysts expect profits to rise 20.4% for the current fiscal year, with revenue expected to rise 42.2%.
Additionally, HZNP has climbed higher over the past four weeks, gaining 5.6%. The S&P 500 is down 2.6% in comparison.
Final result
With a # 1 ranking (strong buy), a positive trend in earnings estimate revisions and strong market momentum, Horizon Therapeutics 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 >>
Technological IPOs with huge profit potential
Over the past few years, many popular platforms like Uber and Airbnb have finally made their way into the public markets. But the biggest wins have come from lesser-known names.
For example, electric car maker X Peng climbed + 299.4% in just 2 months. Think of it this way …
If you had put $ 5,000 in XPEV when it went public in September 2020, you could have withdrawn $ 19,970 in November.
With record amounts of cash flowing in IPOs and a record stock market, this year’s lineup could be even more lucrative.
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Horizon Therapeutics Public Limited Company (HZNP): Free Stock Analysis Report
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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.
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