Zacks Buy Ranking
posted on
Nov 04, 2015 11:39AM
Dear Ledenfrog
Thanks for your informative comments, they are well taken.
As a CPA, I perform audits of financial statements for which I am compensated. Occasionally circumstances arise in which disclosures or financial statement adjustments are required which are not in the best interest of my client. CPAs have an ethical responsibility to disclose certain adverse issues that may come to their attention in the course of the audit or to adjust erroneous financial statements to present an accurate picture of the entities financial condition irregardless of the clients wishes. I take my ethical responsibility seriously. Every three years my accounting practice is required to have a "Peer Review" to ascertain that the financial statements issued are in compliance with GAAP - their is also the dreaded "malpractice claim to remind us of our ethical responsibility. My presumption is that Zacks' also has professional standards and ethics that require due diligence and accurate reporting.
I lifted the following guide to their ranks from their website. I would like to see RVX as a Strong Buy and I'm sure that will come after FDA approval. Note that only 15% of the stocks that they cover have a Buy rating.
Given the sheer number of Earnings Estimate Revisions made on daily basis, it can be very difficult to determine which stocks to buy and which ones to avoid. The Zacks Rank solves this problem by helping investors harness the power of earnings estimate revisions to invest more successfully.
The Zacks Rank is a proprietary quantitative model that uses trends in earnings estimate revisions and EPS surprises to classify stocks into five groups:
#1 = Strong Buy
#2 = Buy
#3 = Hold
#4 = Sell
#5 = Strong Sell
At all times, the Zacks Rank is proportionately applied to the approximate 4,400 stocks for which sell-side analyst estimates are available. In other words, regardless of how strong the economy is, only the very top 5% of stocks receive the coveted designation of Zacks #1 Rank. More importantly, at all times, approximately the same number of stocks are assigned a Zacks #5 Rank as are assigned a Zacks #1 Rank.
This equality between "Strong Buy" and "Strong Sell" recommendations makes the Zacks Rank a much more reliable indicator than brokerage recommendations. Brokerage recommendations are biased towards buy ratings, with many sell-side analysts reluctant to issue a "sell" recommendation.
1 | 5% | 220 | Strong Buy |
2 | 15% | 660 | Buy |
3 | 60% | 2640 | Hold |
4 | 15% | 660 | Sell |
5 | 5% | 220 | Strong Sell |
The majority of stocks are assigned Zacks Rank #3, meaning their trend in Earnings Estimate Revisions is inline with the overall market.
Chicagoest