Filtered Zacks Rank2 Revisited

By Kevin Matras
On 1:00 am EDT, Tuesday September 29, 2009

The last time I talked about this strategy was back on Jun 16.

Prior to that, it was featured back in October 2007, right before the bear market hit.

When I talked about it then, this strategy had shown an average annual return of 72.7% per year going all the way back to 2000 (2000 thru Sept. 2007 - nearly 8 years at that time).

2008, as you might have guessed, was a tough year. But that's part of trading.

There will always be challenges along the way. However, using a proven profitable strategy can give you the confidence to stick with it, knowing that the odds of success are in your favor.

A proven profitable strategy is, of course, different than a box of magic. Nothing will ever preclude you from having another losing trade. But following sound and tested stock-picking rules can help you beat the market over and over again.

2009

When I spoke about this strategy in June, I showed that the Filtered Zacks Rank2 strategy (using a 1 week holding period) was up 55.1% this year vs. the S&P 500's 2.1% (thru the first week of June 2009).

Today, I wanted to revisit this strategy again by updating its returns thru most of September.

Currently, thru the third week of September, the Filtered Zacks Rank2 strategy is up 91.3% vs. the S&P 500's 16.7%.

Pretty impressive.

And even more so is the smooth ride getting there:

It holds 5 stocks in its portfolio at a time, and it's a pretty easy strategy to trade. But you will be rebalancing your portfolio weekly. So if you're an active trader, you'll love it.

Even if you're not, seeing the stocks that it's picking is exciting to watch.

Parameters

There are three items that go into this screen:

Zacks Rank = 1
As you know, the Zacks Rank is one of the best ranking systems out there. Since 1988 (over the last 21+ years), the Zacks #1 Rank stocks have shown an average annual return of over 26.3% a year. This screen starts off by focusing in on these.
% Change Current Quarter Estimates over 4 Weeks > 0
This item is important because, while the Zacks Rank already looks at the Current Year's Estimate Revisions and Next Year's Estimate Revisions, this added component looks at the more immediate future, which is the Current Quarter. And by saying greater than zero, we're excluding any company with a negative revision.
% Change in the Average Broker Rating over 1 Week = Top # 5
This means I'm looking for the 5 stocks with the biggest or best change in their average broker rating. In other words, brokers have been upgrading the stocks. While I don't really follow broker recommendations, per se', since I believe they're skewed to the upside, I do like to see the change in the rating. Are these guys getting more bullish or less bullish? This is good to know. So I want to make sure the average broker rating has gotten better, or at least not gotten worse, over the last week.

Combined, these three items produce some very powerful results.

(This strategy comes loaded with the Research Wizard and is called: bt_sow_filtered zacks rank2. It can be found in the SoW (Screen of the Week) folder.)

Here are three of the stocks that qualified the Filtered Zacks Rank2 strategy for 9/28/09:

BLK BlackRock, Inc.

MSTR MicroStrategy, Inc.

STX Seagate Technology

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks' portfolios and strategies are available at: http://www.zacks.com/performance.

MICROSTRATEGY (MSTR): Free Stock Analysis Report

SEAGATE TECH (STX): Free Stock Analysis Report

BLACKROCK INC (BLK): Free Stock Analysis Report

Zacks Investment Research