Introduction
Zacks Investment Research is an influential American company focusing on producing independent research and investment-related content. Founded in 1978 by Len Zacks—an insightful Ph.D. candidate from MIT—Zacks has since grown into a key player in the world of investment research. This article will delve into the company’s history, its research methodologies, and the unique services it offers to help investors make informed financial decisions.
Overview of Zacks Investment Research
At its core, Zacks aims to equip professional investors with essential financial data and analytical content. The company plays a vital role in assisting investors—whether managing proprietary accounts or advising clients—by providing in-depth market analyses and performance forecasts. Among its key strengths, Zacks is widely recognized for its consensus earnings-per-share (EPS) estimates, a powerful tool used to gauge the financial health of public companies.
Key Takeaways
- Foundation: Established in 1978, Zacks was conceptualized based on Len Zacks' insights while pursuing his Ph.D.
- Research Focus: Specializes in earnings estimate revisions—a concept described by Len Zacks as "the most powerful force impacting stock prices."
- Zacks Ranks: Provides a quantitative stock-rating system, assigning ratings on a scale of one (Strong Buy) to five (Strong Sell) based on multiple criteria, including the consensus of analysts.
Understanding Zacks' Research Methodologies
Quantitative Stock-Rating System
Zacks operates its investment research based on a strictly quantitative approach. The research is free from the biases or influences of individual analysts; instead, it utilizes rigorous mathematical models to evaluate companies. The foundation of Zacks' system revolves around Earnings per Share (EPS) metrics, with a particular focus on revisions to projected earnings as indications of future stock performance.
The research primarily stems from data sourced from over 185 U.S. brokerage firms, encompassing more than 8,500 publicly traded companies. By aggregating insights from thousands of analysts, Zacks can establish an expert consensus on stocks' earnings potential, giving it an edge in predicting market trends.
Zacks Ranks
One of Zacks' most notable services is the Zacks Ranks, a classification system that categorizes stocks and funds in terms of their earnings potential. The ranks, which range from "Strong Buy" to "Strong Sell," are determined based on four essential criteria:
- Agreement: The level of consensus among brokerage analysts regarding changes in a stock's valuation.
- Magnitude: The intensity of the latest changes in analysts' consensus.
- Upside: The projected upside compared to the consensus estimate.
- Surprise: The frequency of positive earnings surprises in recent quarters.
These metrics hinge on Len Zacks' assertion that earnings estimate revisions significantly impact stock prices. When a company's earnings estimates take an upward turn, it typically attracts institutional buyers who push stock prices higher. This provides individual investors with a window of opportunity to capitalize on the anticipated momentum.
Performance History
Historically, Zacks has demonstrated success with its predictive capabilities. For example, in July 2012, Zacks rated LSB Industries (LSX) as a "Strong Buy." Following several upward revisions in earnings estimates, LSX delivered remarkable ROI of 36% over the next three months, significantly outperforming the S&P 500, which yielded only 5% during that period.
Zacks vs. Morningstar: A Comparative Analysis
Zacks is often compared to Morningstar Inc., another significant player in investment research. While both firms provide valuable insights into stocks and mutual funds, their methodologies differ markedly.
- Zacks: Utilizes a predominantly quantitative approach, heavily relying on mathematical analysis to assess stock performance.
- Morningstar: Focuses more on fundamental analysis, evaluating historical data and underlying company performance to determine its rankings.
Both companies offer a mix of free and paid services, catering to various investor needs and preferences.
Additional Zacks Services
Zacks Stock Screener
A pivotal feature of Zacks Investment Research is the Zacks Stock Screener, a paid tool enabling investors to query stocks based on desired performance metrics like price changes and dividends. Investors can target stocks according to Zacks Rank and EPS adjustments, integrating Zacks' focus on earnings estimates into their stock-picking strategies.
- Cost: The Zacks Premium Screens come with a subscription fee of around $249 per year, with premium tiers available.
Zacks Industry Rank
The Zacks Industry Rank provides insights into the average Zacks Rank of all companies within a specific industry sector. This metric can serve as a guide for identifying favorable investment conditions across similar companies, helping investors discern industry-wide trends.
Zacks Mutual Fund Rank
Zacks applies a similar ranking system to mutual funds as it does with stocks. The Zacks Mutual Fund Rank evaluates approximately 19,000 mutual funds every quarter, based on the average Zacks Rank of the stocks they hold. This allows investors to assess mutual funds using the same quantitative measures adopted for individual equities.
Conclusion
Zacks Investment Research stands as a formidable entity in the investment research landscape, distinguished by its quantitative approach and unique focus on earnings estimate revisions. By enabling individual and institutional investors to leverage data-driven insights, Zacks fosters a more informed investment environment. As investing continues to evolve, Zacks remains pivotal for those seeking reliable information to guide their financial decisions. Whether evaluating stocks, mutual funds, or industry trends, Zacks provides tools and resources to help investors maximize their potential.