Discovering Winning Stocks with Zacks Style Scores
Investing in the stock market can be a thrilling and rewarding experience, but it also comes with its fair share of challenges. One of the most significant obstacles is identifying which stocks have the potential to outperform the market. While there’s no foolproof method to guarantee market-beating returns, the Zacks Style Scores system offers valuable insights to help guide your investment decisions.
Understanding the Zacks Style Scores
The Zacks Style Scores are a proprietary stock-rating system developed by Zacks Investment Research. This system evaluates each stock based on five key factors, or “styles,” that are known to influence a company’s earnings: Value, Growth, Momentum, Size, and Quality.
Value
- The Value Style Score assesses a stock’s value relative to its industry peers and the market as a whole.
- Factors considered include Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, and Price-to-Sales (P/S) ratio.
Growth
- The Growth Style Score measures a stock’s earnings growth potential.
- Factors considered include earnings estimate revisions, sales growth, and cash flow.
Momentum
- The Momentum Style Score evaluates a stock’s recent price performance and momentum.
- Factors considered include price change, earnings estimate revisions, and price/volume trends.
Size
- The Size Style Score identifies large-cap, mid-cap, and small-cap stocks that are more or less likely to outperform.
- Factors considered include market capitalization and other size-related metrics.
Quality
- The Quality Style Score assesses a company’s financial health and profitability.
- Factors considered include return on equity (ROE), debt-to-equity ratio, and earnings stability.
How It Impacts Your Portfolio
By analyzing a stock’s Style Scores, investors can make more informed decisions about which stocks to add to their portfolios. For example, if you’re looking for value stocks, you might focus on those with high Value Style Scores and low Growth Style Scores. Conversely, if you’re interested in growth stocks, you might look for those with high Growth Style Scores and low Value Style Scores.
Global Impact
The widespread use of the Zacks Style Scores system can contribute to a more efficient and informed stock market. By providing investors with a clearer understanding of a stock’s underlying characteristics, the system can help reduce market inefficiencies and promote more rational investment decisions.
Conclusion
The Zacks Style Scores system offers a powerful and sophisticated approach to stock selection, helping investors make more informed decisions and potentially outperform the market. By considering a stock’s Value, Growth, Momentum, Size, and Quality Style Scores, investors can build a well-diversified portfolio that caters to their investment objectives and risk tolerance. With its global impact and proven effectiveness, the Zacks Style Scores system is an essential tool for any serious investor.
Happy investing!
Sources
Zacks Investment Research. (n.d.). Zacks Style Scores. Retrieved March 22, 2023, from https://www.zacks.com/style/scores
