Chapter 4

Trading the Zacks Rank

One of the simplest and one of the best trading strategies is to simply buy the stocks that have a Zacks Rank #1 and sell them when they’re no longer Ranked a #1 (which means a 2, 3, 4, or 5). Since 1988, this strategy has beaten the S&P in 20 out of the last 22 years.

The Zacks Rank versus the Market

The strategy of buying the Zacks #1 Ranked stocks and selling them a month later if they’re no longer Ranked a #1 has shown an average annual gross return of 27.27% a year.1 This is in stark contrast to the S&P 500’s 8.86% average return.

Take a look at the returns and you can see that the Zacks Rank has increased by over three times that of the S&P. (See Table 4.1.)

TABLE 4.1 Zacks Rank Performance Summary (Monthly Rebalancing)

But understand, if you’re able to do this in a repeatable way, over and over again, that can add up to a lot more than just three times the S&P.

In fact, assuming you could realize the returns for each year as shown, the following chart illustrates how a portfolio could have grown in value. (Note: the compounded returns displayed do not include brokerage commissions and fees or potential price impacts due to trade execution or bid/ask spreads.) (See Figure 4.1.)

FIGURE 4.1 Zacks #1 Rank Compounded Performance

See page 285 for a complete explanation of how these compounded returns are calculated.

What’s interesting is that ...

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