Today’s screen is a simple concept but a very powerful one.
First, let’s start off with some Zacks Rank facts:
Over the last 21½ years, the Zacks #1 Rank stocks (or Strong Buys) has significantly outperformed the market by showing an average annual return of over 27.3% per year.
This compares to the S&P 500’s return of only 8.6% per year. The Zacks #5 Rank stocks (or Strong Sells) has significantly underperformed the market with an average annual return of literally less than 1% (0.92%) a year.
The complete breakdown is below:
Only 5% of the stocks can get a Zacks #1 Rank. Likewise, only 5% of the stocks can get a Zacks #5 Rank.
The Zacks #2 Ranks and Zacks #4 Ranks have the same distribution as well – 15% each.
So the #1s are in a very coveted spot and reserved for only the best stocks. And the #5s are reserved for the worst ones.
If a stock has a Rank of 4 or 5 (Sell or Strong Sell), something huge would have to happen in order for it to leapfrog so many places to get to be a Zacks #1 Rank.
And that’s today’s screen.
We’re looking for companies that currently have a Zacks Rank of 1 (Strong Buy) that were Ranked a 5 or a 4 the previous week.
Here’s how that expression looks in the Research Wizard if you’re doing it on your own at home.
BTW – this screen already comes loaded with the Research Wizard and it’s called ‘zacks rank 5 or 4 to 1’. It’s in the SoW (Screen of the Week) folder.
This screen does not produce a ton of stocks because seeing a stock go from a 5 or a 4 to a 1 is somewhat rare. But it’ll usually produce a few stocks per week.
But these stocks are worth the wait.
A backtest of this strategy (using a 1-week holding period) from 2007 thru July 2009 (the whole of the bear market) showed a total compounded return of 481% vs. the S&P’s 28.8% during that same time.
That works out to be an average annual return of 96.9% a year vs. the S&P’s 12.2% a year.
There will be periods where no stocks will qualify.
But again, when they do, it’s worth the wait.
This week, there were only 2 stocks (for the week of 8/17/09):
GIVN Given Imaging, Ltd.
PNBC Princeton National Bancorp, Inc.
But if you run it every day, you’ll likely find even more.
Give this screen a try in your own portfolio and see if it outperforms for you.
Click here to learn more and to begin a 2 week free trial to the Research Wizard.
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.
