U.S. markets close in 3 hours 1 minute
  • S&P 500

    4,247.70
    +1.26 (+0.03%)
     
  • Dow 30

    33,914.01
    -31.57 (-0.09%)
     
  • Nasdaq

    14,272.60
    +19.33 (+0.14%)
     
  • Russell 2000

    2,305.90
    +9.95 (+0.43%)
     
  • Crude Oil

    73.26
    +0.41 (+0.56%)
     
  • Gold

    1,784.10
    +6.70 (+0.38%)
     
  • Silver

    26.12
    +0.26 (+1.02%)
     
  • EUR/USD

    1.1939
    -0.0004 (-0.04%)
     
  • 10-Yr Bond

    1.4900
    +0.0180 (+1.22%)
     
  • GBP/USD

    1.3964
    +0.0017 (+0.12%)
     
  • USD/JPY

    110.9490
    +0.3140 (+0.28%)
     
  • BTC-USD

    33,755.48
    +1,210.98 (+3.72%)
     
  • CMC Crypto 200

    811.40
    +1.20 (+0.15%)
     
  • FTSE 100

    7,074.06
    -15.95 (-0.22%)
     
  • Nikkei 225

    28,874.89
    -9.24 (-0.03%)
     

The Zacks Rank Explained: How to Find Strong Buy Retail and Wholesale Stocks

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

It doesn't matter if you're a growth, value, income, or momentum-focused investor -- building a successful investment portfolio takes skill, research, and a little bit of luck.

How do you find the right combination of stocks that will generate returns that could fund your retirement, or your kids' college tuition, or your short- and long-term savings goals?

Enter the Zacks Rank.

What is the Zacks Rank?

A unique, proprietary stock-rating model, the Zacks Rank uses earnings estimate revisions, or changes to a company's earnings expectations, to help investors create a winning portfolio.

There are four main factors behind the Zacks Rank: Agreement, Magnitude, Upside, and Surprise.

Agreement is the extent to which all brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of analysts revising their estimates higher, the better chance the stock will outperform.

Magnitude is the size of the recent change in the consensus estimate for the current and next fiscal years.

Upside is the difference between the most accurate estimate, which is calculated by Zacks, and the consensus estimate.

Surprise is made up of a company's last few quarters' earnings per share surprises; companies with a positive earnings surprise are more likely to beat expectations in the future.

Each factor is given a raw score, which is recalculated every night and compiled into the Zacks Rank. Utilizing this data, stocks are put into five different groups: Strong Buy, Buy, Hold, Sell, and Strong Sell.

The Power of Institutional Investors

The Zacks Rank also allows individual investors, or retail investors, to benefit from the power of institutional investors.

These professionals manage the trillions of dollars invested in hedge funds, mutual funds, and investment banks, and studies have shown that they can and do move the market because of the large amounts of money they invest with. Thus, the market tends to move in the same direction as institutional investors.

In order to figure out the fair value of a company and its shares, these investors will build valuation models focused on earnings and earnings expectations. Because if you raise estimates for the bottom line, it creates a higher fair value for a company.

Institutional investors will use these changes to help in their decision-making, typically buying stocks with rising estimates and selling those with falling estimates. Higher earnings expectations can translate into a rise in stock price and bigger gains for the investor.

Retail investors who get in at the first sign of upward revisions have a distinct advantage over larger investors since it can often take weeks, if not months, for an institutional investor to build a position. They'll also benefit from the expected institutional buying that could follow.

Not only can the Zacks Rank help you take advantage of trends in earnings estimate revisions, but it can also provide a way to get into stocks that are highly sought after by professionals.

How to Invest with the Zacks Rank

The Zacks Rank is known for transforming investment portfolios. In fact, a portfolio of Zacks Rank #1 (Strong Buy) stocks has beaten the market in 26 of the last 32 years, with an average annual return of +25.41%.

Moreover, stocks with a new #1 (Strong Buy) ranking have some of the biggest profit potential, while those that fell to a #4 (Sell) or #5 (Strong Sell) have some of the worst.

Let's take a look at Dick's Sporting Goods (DKS), which was added to the Zacks Rank #1 list on May 27, 2021.

DICK’S Sporting Goods Inc. was founded in 1948 in New York under the labels Dick's Clothing and Sporting Goods, Inc. It was earlier reincorporated as a Delaware corporation and changed our name to Dick's Sporting Goods, Inc. in April 1999. The company’s executive office is located in Coraopolis, Pennsylvania.

11 analysts revised their earnings estimate upwards in the last 60 days for fiscal 2022. The Zacks Consensus Estimate has increased $2.70 to $7.62 per share. DKS boasts an average earnings surprise of 136.8%.

Earnings are expected to grow 24.5% for the current fiscal year, while revenue is projected to increase 11.5%.

Additionally, DKS has climbed higher over the past four weeks, gaining 18.1%. The S&P 500 is up 0.6% in comparison.

Bottom Line

With a #1 (Strong Buy) ranking, positive trend in earnings estimate revisions, and strong market momentum, Dick's Sporting Goods should be on investors' shortlist.

If you want even more information on the Zacks Ranks, or one of our many other investing strategies, check out the Zacks Education home page.

Discover Today's Top Stocks

Our private Zacks #1 Rank 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 boost your investing returns on your very next trade. See Today's Zacks #1 Rank List >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
DICKS Sporting Goods, Inc. (DKS) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research