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.
The Research Service offers daily Zacks Ranking and Zacks Industry Ranking updates, full access to the Zacks #1 Ranking List, Stock Research Reports and Premium Stock Screens, all of which will help you become a smarter and more confident investor.
Zacks Premium also includes access to 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.
Based on their value, growth and momentum characteristics, each stock is assigned a rating of A, B, C, D or F. The higher the score, the better the chance that the stock will outperform; an A is better than a B, a B is better than a C, etc.
Style Scores are divided into four categories:
Finding good stocks at good prices and finding out which companies are trading at fair value is what value investors like to focus on. Thus, the value style score takes into account ratios such as P/E, PEG, price/sales, price/cash flow and a host of other multiples to highlight the most attractive and discounted stocks. .
While good value is important, growth-oriented investors focus more on a company’s financial strength and health, as well as its future prospects. The Growth Style Score considers forecasted and historical earnings, sales and cash flow to uncover stocks that will experience sustainable long-term growth.
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.
What if you like to use all three types of investment? 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.
Stock #1 (Strong Buy) has produced an unmatched average annual return of +25.41% since 1988, more than double the performance of the S&P 500 over the same period. However, the Zacks Rank looks at a ton of stocks, and there can be over 200 companies with a Strong Buy rank and another 600 with a #2 (Buy) rank on any given 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.
You want to make sure you’re buying stocks with the highest probability of success, and to do that you’ll need to choose stocks with a Zacks #1 or #2 rating that also have A or B style scores. you like a security that is only ranked #3 (Hold), it should also have scores of A or B to ensure as much upside potential as possible.
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 share price will also decline.
So the more stocks you have with a rank of #1 or #2 and scores of A or B, the better.
Stock to Watch: Dollar Tree (DLTR)
Founded in 1986 and based in Chesapeake, Virginia, Dollar Tree Inc. is an operator of discount variety stores featuring merchandise and other assortments. Its stores operate successfully in major metropolitan areas, mid-sized cities and small towns. The company offers a wide range of quality everyday general merchandise in many categories including housewares, seasonal goods, candy and food, toys, health and beauty care, gifts, party favors, stationery, books, personal accessories and other consumer items. Its stores are supported by a national logistics network and distribution centers.
DLTR is a #3 (Hold) on the Zacks rank, with a VGM score of A.
Aggressive investors should take note of this retail and wholesale stock. DLTR has a Momentum Style Score of A, and the shares are up 14.3% over the past four weeks.
Eight analysts revised up their earnings estimate in the past 60 days for fiscal 2023, while Zacks’ consensus estimate rose $0.54 to $7.84 per share. DLTR also shows an average earnings surprise of 11.8%.
With a strong Zacks ranking and top Momentum and VGM style scores, DLTR should be on the shortlist for investors.
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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.