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 popular research service can help you become a smarter, more confident investor, giving you access to daily updates from the Zacks Ranking and Zacks Industry Ranking, Zacks #1 Ranking List, stock research and premium stock screens.
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:
Value investors love finding good stocks at good prices, especially before the broader market realizes a stock’s true value. Using ratios such as P/E, PEG, Price/Sales, Price/Cash Flow and many other multiples, the Value Style Score identifies 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.
Momentum traders and investors live by the saying “the trend is your friend”. This style of investing involves taking advantage of rising or falling trends in a stock’s price or earnings prospects. Using factors such as the week-to-week price change and the monthly percentage change in earnings estimates, the Momentum Style Score can indicate favorable times to create a position in high-momentum stocks.
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.
It’s been a big hit, with #1 stocks (Strong Buy) producing the highest average annual return of +25.41% since 1988. That’s more than double the S&P 500. But due to the large number of stocks that we assess, there are over 200 companies with a strong Buy Rank, plus another 600 with a #2 (Buy) Rank, on any given day.
That totals over 800 top-rated stocks, and trying to pick the best stocks for you and your portfolio can be overwhelming.
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.
For example, a stock with a #4 (sell) or #5 (strong sell) rating, even one with scores of A and B, will always have a declining earnings forecast, and a greater chance that its price will stock is also falling.
So the more stocks you have with a rank of #1 or #2 and scores of A or B, the better.
Stock to watch: KB Home (KBH)
Based in Los Angeles, California, KB Home is a well-known home builder in the United States and one of the largest in the state. The company’s revenue comes from residential construction activities (representing 99.7% of total revenue in fiscal 2021) and financial services (0.3%).
KBH is a #3 (Hold) on the Zacks rank, with a VGM score of A.
It also boasts a value style score of A thanks to attractive valuation metrics like a forward P/E ratio of 3.16; value investors should take this into account.
For fiscal 2022, four analysts have revised their earnings estimate higher in the past 60 days, and Zacks’ consensus estimate rose $0.02 to $10.18 per share. KBH shows an average surprise profit of 5.9%.
With a strong Zacks ranking and high-level value and VGM style scores, KBH 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 jump in at any moment.
This company could rival or surpass other recent Zacks stocks which are expected to double like Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one year .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.