Kevin Matras outlines a strategy for how to trade the Zacks Rank in a very practical manner for almost anyone’s portfolio. Stocks in this week’s article are Manpower, Inc. (NYSE: MAN), Snap-On, Inc. (NYSE: SNA) and Whirlpool, Corporation (NYSE: WHR). Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=109
Screen of the Week written by Kevin Matras of Zacks Investment Research:
The Zacks Rank is probably the most effective rating system out there. In good markets or bad, stocks with a Zacks #1 Rank continue to outperform. In fact, since 1988, the average annual return of Zacks #1 Rank stocks is up 31.8% a year.
Today I want to focus on recreating those returns in a practical trading account. Since there are typically over 200+ Zacks #1 Rank stocks at any time, it’s important to know what other filters to apply to the Zacks Rank to generate a smaller (more tradable) watchlist.
Two filters in particular, when added to the Zacks #1 Rank, not only narrows down the number of qualified stocks to a practical portfolio size (approximately 10-12 stocks), it often times increases its performance as well.
Parameters
The two filters I'm talking about are: -- % Change Q1 Est. over 4 Weeks greater than 0 (Positive current quarter estimate revisions over the last four weeks.) -- % Broker Rating Change over 1 Week greater than 0 (Positive avg. broker rating changes over the last week.) And of course ... -- Zacks Rank equal to 1
These two items added to the Zacks #1 Rank produce powerful results!
Results
I ran a series of separate tests on the Filtered Zacks Rank strategy over each of the last five years (2002 through 2006). I rebalanced the portfolio every four weeks and started each run on different start dates so each test would be rebalanced over a different set of four-week periods. (This is done to eliminate coincidence and verify robustness.)
In 2002, the Zacks #1 Rank stocks returned just over 1%, with an average portfolio size of approximately 200 stocks. An impressive return when compared to the S&P 500’s loss. But holding onto 200 or so stocks isn’t doable for most investors. But when adding the two aforementioned filters, the portfolio size shrinks to a tradable 10 stocks (on average), and a phenomenal 18.1% average annualized return.
In 2003, the Zacks #1 Rank list (approximately 200 stocks) did nearly 75% in comparison to the S&P 500’s almost 29%. But the filtered Zacks Rank narrowed that list down to only 10 stocks (on average) with a return of over 66%. (And while it’s true the filtered Zacks Rank produced a smaller return than the full Zacks Rank (66% vs. 75%), rebalancing only 10 stocks a month is far more manageable than 200.)
In 2004, the returns for the Zacks #1 Rank stocks were up 28.8% with an average portfolio size of 202 stocks. (The S&P was up only 10.9%.) But the filtered Zacks #1 Rank’s annualized returns were up 30.3%, with again only 10 stocks to hold on average.
In 2005, the complete list of the Zacks #1 Rank stocks showed an average annualized gross return of 31.7% with an average portfolio size of 208 stocks. The Filtered Zacks Rank was up 42.4%, but with an average portfolio size of only 10-12 stocks. (And while both of these numbers are impressive, 10-12 stocks is way easier to trade than 208!)
In 2006, the average annualized return for the Filtered Zacks Rank was up 34.3%, holding on average of only eight stocks in your portfolio.
And so far in 2007, (YTD through 4/20/07), the Filtered Zacks Rank’s average compounded gross return is already up 21% with an average of only 6-7 stocks held at a time.
I also ran these strategies using a one-week holding period with very impressive results. In fact, the Filtered Zacks Rank’s compounded gross return is up 35.3% so far this year with an average portfolio size of only six stocks.
Here’s a few of the stocks that qualified the Filtered Zacks Rank for 5/1/07:
MAN Manpower, Inc. SNA Snap-On, Inc. WHR Whirlpool, Corp.
Get the rest of the stocks on this list and start trading the filtered Zacks Rank (or any of our other strategies) in your own account. Remember, the key to successful screening is in discovering those screens that have produced profitable results in the past. And that’s exactly what you get with the Research Wizard stock picking and backtesting program. Click here to learn more.
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here http://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros http://at.zacks.com/?id=113
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
