Your investing style determines the type of research you need to make the best decisions. But for people who don’t yet have a set style, trying to wade through the sea of investment research firms and investment advisors can be a complicated matter. This is especially true if you don’t want to pay hundreds of dollars per year for information that is sub-par or which you have a hard time putting to use.
Investing in stocks is risky enough so it’s critical that you avoid taking bad advice. With the rise of index funds and now robo-advisers, many individual investors have left the stock-picking game. Warren Buffet is famous for recommending S&P 500 index funds instead of individual stocks.
Based on the principle of modern portfolio theory, index investing allows you to reap the historically successful annual returns of the U.S. stock market with sufficient diversification to reduce your risk.
Why assume the risk of individual stock picking when you can make an average return of 10% annually by investing in a market index fund or ETF?
Because some investors and research firms claim they can do better than the S&P 500 or any other index. Zacks Investment Research is one of these firms.
Get Started With Zacks Investment Research
What is Zacks Investment Research?
Unlike most investment research firms, Zacks was founded by an MIT-educated economist, Len Zacks. Starting in the 1970’s Len Zacks started building statistical models to predict stock prices. According to Len Zacks’ research, initially published in 1979, “earnings estimate revisions are the most powerful force affecting stock prices.” This idea is the foundation of the Zacks Rank stock-picking system, which classifies stocks into five groups according to four criteria.
The four factors Zacks Investment Research uses to predict the future performance of stocks are agreement, magnitude, upside, and surprise. Here’s a closer look at what these factors mean.
Agreement tracks the extent to which analysts agree on their earnings estimate revisions. According to Zacks, a stronger agreement correlation implies greater accuracy among the earnings estimate revisions. More agreement is better.
Magnitude refers to the average percentage of earnings revision estimates. For example, a stock with revised estimates of an increase or decrease of 5% implies a greater move than one of 2%.
Upside considers the difference between what Zacks believes is the most accurate estimate and the consensus estimate. When there is a high, positive difference between the most accurate and the consensus estimates, Zacks awards a higher score for this factor.
Finally, Zacks looks at surprise, which indicates how likely Zacks believes a stock will “surprise” earnings estimates. According to its formula, stocks that have surprised earnings estimates in the past are more likely to do so in the future.
According to its overall scores on these factors, Zacks ranks stocks as:
- Strong Buy (stocks in the top 5% of Zacks Ranks score)
- Buy (stocks in the next 15% according to their Zacks Ranks scores)
- Hold (stocks in the next 60% according to their Zacks Ranks scores)
- Sell (stocks in the next 15% according to Zacks Rank)
- Strong Sell (stocks with Zacks Ranks scores in the bottom 5%)
Unlike many investment research firms, Zacks is transparent about its stock-picking formula. Built in the days before it was a thing, Zacks effectively crowdsources estimates from knowledgeable analysts to predict future stock prices. Its analytics-only approach to investing gives the platform a trading advantage since it avoids providing subscribers with bad advice that’s emotionally-driven.
How does Zacks Rank Perform?
Enough about the statistical model Zacks Investment Research firm uses to select its winners—how does it perform against the almighty S&P 500, the hallmark return of the U.S. stock market?
It performs well. Whereas the S&P 500 returns on average a respectable 10% annually, Zacks Ranks Strong Buys have achieved an average return of 25%. And not just in the short term, either. That 25% is the average return over the past 30 years. In other words, Zacks Ranks Strong Buys have trounced the S&P 500 returns by an average of two and a half times over the past 30 years.
You would be hard-pressed to find an investment research firm that manages these numbers over a 30-year horizon. If you have a strong urge to buy your own stocks, you might do better with Zacks than an index fund or ETF, although this higher return also implies a greater degree of risk.
Zacks Investment Style
It’s worth noting here that earnings estimates can change at any time, so you will probably not buy and hold Zacks Ranks stocks for the long term. So what might be a Strong Buy this quarter could fall to a Strong Sell in the next quarter, although generally, you can expect stocks to continue moving in the same direction.
The information you get with Zacks Investment Research requires a decree of responsiveness to be successful. You need to be ready to make your moves as Zacks publishes the information. Otherwise, you might lose out as the market corrects the stock’s price. This can also hit you in the wallet with higher capital gains taxes than investment research firms that help you choose stocks to buy and hold for longer periods.
But this momentum investing is where the greatest profits lie. And it’s not like you are acting purely in the short term to make day or swing trades. You just need to be ready to buy and sell as Zacks Ranks publishes its recommendations.
If you are an investor who does not like more frequent trading, an investment research firm focused on longer-term investing might be more appropriate. If that’s the case, you can compare the differences between Motley Fool and Zacks Investment Research in our comparison review.
Now that you are familiar with the theory behind Zacks Ranks let’s look at the three Zacks Investment Research services to see what you get with each. Here is what’s included in Zacks Premium:
- Zacks #1 Rank List
- Industry Rank List
- Premium Screens
- Focus List
- Research Reports
- Earnings ESP Filter
- Zacks #5 Rank List
The real gem here is the Zacks #1 Rank List, which comprises the Strong Buys according to the Zacks Rank formula. These top 5% of stocks are what have been historically outperforming the market by more than two-to-one. The rest of the information is useful, but the #1 Rank List is what you will most likely use to power your trades.
The Zacks #5 Rank List can help you sell off the secret losers in your stock portfolio, or you could use this information to buy put options to short these stocks. The other offerings on the list are also helpful, but the Zacks #1 Rank and Zacks #5 Rank are the two lists you are most likely to use.
Zacks Premium costs you $249 per year, but for picks that double the market consistently, that’s a great price. If you sign up through this link, you can get instant free access to Zacks Investment Research’s special report on 5 Stocks Set to Double with no commitment to sign up for the service.
Zacks Investor Collection
Zacks Investor Collection ups the game by giving you everything in Zacks Premium plus the following:
- Stocks Under $10
- ETF Investor
- Income Investor
- Value Investor
- Zacks Confidential
- Zacks Top Ten Stocks
This broadens the information provided to include different investment objectives and styles. While the Zacks #1 Rank can help you build an excellent shorter-term portfolio, you do want to have some of your assets in longer-term vehicles in the event of a market shock.
The additional options offered by Zacks Investor Collection provide you with ample opportunities to build that long-term portfolio.
Zacks Investor Collection costs $495, about double the cost of Zacks Premium, but if you are the type of investor that plans to make short and long-term trades, then Zacks Investor Collection might be a better choice. You can sign up through this link to try Zacks out for free, including free instant reports.
The final service in the Zacks Investment Research arsenal is Zacks Ultimate. With Zacks Ultimate, you get Zacks Premium and Zacks Investment Research, plus the following:
- Black Box Trader
- Blockchain Innovators
- Commodity Innovators
- Headline Trader
- Healthcare Innovators
- Home Run Investor
- Insider Trader
- Large-Cap Trader
- Marijuana Innovators
- Options Trader
- Short Sell List
- Surprise Trader
- Technology Innovators
These additional services include research on stocks in high-performing and specialized fields. If you are an investor looking for targeted advice in biotech, crypto, options, and other emerging fields, then Zack’s Ultimate may be for you.
At $2,995 per year, this additional information comes with a price. To justify this expense, you will have to achieve average monthly returns of $250 above the market, so this price point is mainly for experienced investors who have significant cash and plenty of time to dedicate to reading reports.
To sign up for Zacks Ultimate Investor, you can check out this link and receive free picks right away, including a relatively unknown company with 19,000 patents and $30 billion in revenue.
Does Zacks Offer Any Free Services?
In addition to the premium membership, Zacks also offers free membership. To sign up, you just need a valid email address (no credit card required!). Once your account is set up, you’ll be able to start taking advantage of the platform.
Zacks free membership doesn’t offer all the features and fundamental analysis of the premium plans. Nonetheless, it does offer six unique tools and a plethora of investment advice to offer the active trader.
Free members will receive a daily newsletter containing stock pick recommendations from Zacks’ EVP—Kevin Matras—every morning. When signing up, Zacks often sends first-time subscribers a one-time free report in addition to their daily subscription. As of right now, the additional freebie is “7 Best Stocks for the Next 30 Days.”
The Zacks website also hosts a number of free articles. Reading these may help you reach your financial goals faster, even though they’re not all related to investing. Popular topics include credit card management, personal finance, retirement planning, and investing.
The free membership gives you access to “Quotes, Charts, News & Basic Research.” As the name implies, the data isn’t very in-depth, but it should give you some inspiration for potential future trades.
Email Alerts & Portfolio Tracking
You’ll have an easier time keeping track of your current stocks with this free portfolio manager. Being able to quickly view the Zacks rank for your investments will help you decide whether to buy, hold, or sell. Once you’ve entered your current stocks into the portfolio manager, you’ll start receiving email alerts on your individual assets.
In addition to the latest Zacks Rank for your portfolio, the portfolio also gives you instant access to:
- Earnings Estimate Revisions
- Negative & Positive Earnings Surprises
- Broker Recommendation Changes
- Relevant Company News
Zacks Rank is one of the platform’s most useful stock research tools. Whether you’re trying to analyze a mutual fund, a stock, or an ETF, this tool instantly gives you the Zacks recommendation on a particular stock. Each Zacks Rank is calculated with a proprietary model based on the “Agreement,” “Magnitude,” “Upside,” and “Surprise” of a stock.
Zack Styles Scores
This is another scoring system offered by Zacks. It focuses on the “Growth,” “Value,” and “Momentum” of an asset.
Pros and Cons of Zacks Investment Research
Here are the pros and cons of Zacks Investment Research:
- Transparent Investment Research – The thing Modest Money most likes about Zacks Investment Research is its transparency. They tell you upfront how they pick their stocks, and their algorithm makes sense. Developed by a world-recognized economist, this is not a faddish investing style. It has been proven to beat the market over the long term.
- Three Membership Levels – Most newcomers will find plenty of what they need in Zacks Premium, but Zacks Investor Collection and Zacks Ultimate are there to help as you grow and require more specialized investing knowledge.
- Multiple Investment Styles – While Zacks’ sweet spot is medium-term stock investing, all levels, especially the top two, appeal to various investment styles to truly diversify your portfolio.
- Frequent Buying and Selling – With Zacks Investment Research, staying engaged is the key to the game. To take advantage of Zacks #1 Rank, you will have to buy and sell more frequently than other services, possibly several times a year. This can present tax disadvantages in the short term, but your profits will likely offset these.
- Price – At $249 for their lowest-priced product, Zacks Investment Research has higher price points than other investment research firms. That still works out to only $4.79 per week for Zacks Premium. Most individual stock investors will find the information more than worth the cost.
What is the Average Return of Zacks?
The answer varies, depending on which stock selection you’re looking at. However, Zacks fundamental analysis approach seems to have worked out well over the past 24 years.
The worst performing group—”Strong Sell”—has only seen a 2.5% average annual return during that time period. That said, these are the stocks that Zacks recommends selling, so it’s not surprising that they’ve performed poorly.
On the other hand, Zacks best group—”Strong Buy”—has had an average annual return of 24.8%. This is impressive, especially compared to the meager 10.9% average annual return of the S&P 500 during the same time period.
These average returns are impressive, but it’s important to keep in mind that Zacks changes its recommendations often. If you want to see the same returns, you’ll need to keep your portfolio lined up with Zacks portfolio recommendations. If you stray from their recommendations, you may see different results, either better or worse.
Most of Zacks investment management services assume you’re interested in semi-active trading. Although—in general—the earnings potential is quite high, Zacks main services can only be fully utilized by active investors.
Fortunately, Zacks has realized that not all traders want to actively trade with their stock picking service. Other investment companies offer their own alternative stock picking service, but even these still require some investor input.
Enter “Zacks Advantage!” This unique service combines computed technical analysis with human financial advisors, blurring the lines between automated robo-trading and regular investment advisers.
Whereas most robo financial advisors simply seek to match the market, Zacks Advantage actually aims to beat it. This actively-managed robo-advisor is ideal for clients of any risk tolerance, although the minimum investment required to make an account might outweigh the earnings potential for those with limited capital.
You’ll need to make a minimum investment of $25,000 to open a Zacks Advantage account. The service uses asset-based fees, so your fees will depend on how much you ultimately deposit. Here are the current fees:
- $25,000-$99.999 Deposit –70%
- $100,000-$249,999 Deposit –50%
- $250,000+ Deposit –35%
Although Zacks Advantage is a newer service, it uses the same technical analysis as other Zacks products when managing stocks, portfolios, and exchange-traded funds. The fact that it’s actively managed makes it suitable for those with a low risk tolerance, and—although the fees could be lower—we expect Zacks Advantage to perform as advertised.
Zacks Investment Research: The Bottom Line
Zacks Investment Research provides excellent stock research based on a proprietary stock scoring system. As far as algorithms go, this one is consistent, having beaten the market by more than two-to-one over the past 30 years.
Most investors will find Zacks Premium the most appropriate subscription option. At $249 per year, Zacks Premium gives you access to the top 5% and bottom 5% of stocks, according to the Zacks Rank scoring system, with many extra tools in between.
At $495 and $2,995, respectively, Zacks Investor Collection and Zacks Ultimate give you access to an increasingly broader range of investment reports.
Here are some investors who will benefit most from one of the three Zacks Investment Research subscriptions:
- The active trader
- Beginner to advanced stock investors
- Those interested in multiple investment vehicles
- Investors willing to accept higher risk to beat the market
- Investors seeking to make money off earnings estimate revisions
- Investors seeking specialized reports on a variety of sectors
- Investors seeking to diversify from traditional equities and bonds
For those who prefer a hands-off approach, Zacks Advantage presents a promising alternative.
Zacks Investment Research is a solid company with an excellent track record and services to appeal to any level of individual stock investor, both in terms of experience level and capital.
To better look at their options, you can click here to get specialized offers and free reports.
Get Started With Zacks Investment Research