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?
Zacks Style Scores are a unique set of guidelines that rate stocks based on three popular investment types and were developed as complementary indicators for the Zacks Ranking. This combination helps investors choose the stocks most likely to beat 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. .
Growth-oriented investors, on the other hand, are more concerned with a company’s financial strength and health, as well as its future prospects. The Growth Style Score looks at things like forecasted and historical earnings, sales and cash flow to find stocks that will experience sustainable growth over time.
Momentum trading is all about taking advantage of upward or downward trends in a stock’s price or earnings outlook, and these investors live by the saying “the trend is your friend”. The Momentum Style Score can identify good times to initiate a position in a security, using factors such as one-week price change and monthly percentage change in earnings estimates.
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 the 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 it can be difficult trying to pick the best stocks for you and your portfolio.
This is where Style Scores come in.
To have the best chance of big returns, you’ll always want to consider stocks with a Zacks #1 or #2 ranking that also have A or B style scores, which will give you the greatest likelihood of success. If you are considering stocks with a #3 (Hold) rank, it is important that they also have scores of A or B to ensure the most upside potential.
The direction of a stock’s earnings estimate revisions should always be a key factor when deciding which stocks to buy, since the scores were created to work with the Zacks Ranking.
Here’s an example: a stock with a rating of #4 (sell) or #5 (strong sell), 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: GoDaddy (GDDY)
Based in Scottsdale, AZ, GoDaddy is an Internet domain registrar and web hosting company that also sells e-commerce related software and services. The Company is engaged in the design and development of cloud-based technology products for small businesses, web design professionals and individuals.
GDDY is a #3 (Hold) on the Zacks rank, with a VGM score of B.
Aggressive investors should take note of this computer and technology stock. GDDY has a Momentum Style Score of B and the shares are up 5.7% over the past four weeks.
Five analysts upgraded their earnings estimate in the past 60 days for fiscal 2022, while Zacks’ consensus estimate rose $0.18 to $2.19 per share. GDDY is also showing an average earnings surprise of 0.5%.
With a strong Zacks ranking and top Momentum and VGM style scores, GDDY should be on the shortlist for investors.
Special Report: The 5 Best IPOs for Your Portfolio
Today you have the chance to enter the ground floor of one of the best investment opportunities of the year. As the world continues to benefit from an ever-changing internet, a handful of innovative tech companies are poised to reap immense rewards – and you can put yourself in a position to reap the benefits. One is about to disrupt the online communication industry. Brilliantly designed to build online communities, this stock is about to explode when it goes public. With the strength of our economy and record amounts of money pouring into IPOs, you don’t want to miss this opportunity.
>> See Zacks’ Hottest IPOs Now
Click to get this free report
GoDaddy Inc. (GDDY): Free Stock Analysis Report
To read this article on Zacks.com, click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.