Spotting Your Next Market Tripling Return - Anatomy of Success
Beating the market is no easy task. If it was, everybody would be doing it.
But, it's much easier for some folks than others. And those with access to the Zacks Rank have an even greater advantage.
That advantage was on full display when it identified Sandisk ( SNDK ) right before it rallied by more than 35% in less than 2 short months. It had just pulled back along with the market leading to its impending earnings announcement. But the Zacks Rank, just days before their earnings announcement, was upgraded to a Zacks rank #1 Strong Buy, getting investors positioned for a market-tripling return.
The Signal to Get In
On April 11th, 2014, SNDK was upgraded to a Zacks Rank #1, giving a clear sign that it was time to get in. And with the Zacks Rank keying in on upward earnings estimate revisions, it gave investors the confidence that they would once again positively surprise when they announced earnings. In fact, they had positively surprised 6 times in a row prior to that. (Companies that positively surprise are more likely to surprise again the future.)
Giving even more confidence to investors was the fact that their industry was ranked in the top 4% of Zacks Ranked Industries. (Our tests have shown that the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1, with the greatest amount of excess gains in the top 10%.)
Three days later, on 4/16, after the close, they reported earnings and posted a 12.82% positive EPS surprise and a 1.34% positive sales surprise. Cash flow and margins were also up as well. Although none of this was much of a surprise to those who got in ahead of time. But when the market opened the next day, they jumped 9.41%.
Afterwards, the analysts began ratcheting up their earnings estimate revisions for SNDK, going from $5.34 up to $5.85, with 8 upward earnings estimate revisions in a row for a 7.73% increase. And that set in motion a 35.79% return over the next two months, beating the S&P 7.36% by more than 3x.
Below is a chart that illustrates the entire move for SNDK from when it became a Zacks Rank #1 Strong Buy on 4/11/14 to the end of last week (6/6/14). The black line is the price. The blue dotted line represents the upward earnings estimate revisions of the consensus. And the green arrows show the positive surprise shortly after the signal to get in.
Chart courtesy of the Research Wizard.
How to Get Stocks Like These on Your Radar Screen Now
So how can you put stocks like these on your radar screen and enjoy the same kind of returns?
1) Take a look at the Zacks Rank #1 Additions section each day.
Below is a screen shot of what that table looks like. There you'll see the company name, its industry, its price, and the date it was added as a Zacks Rank #1.
2) Then go to the Price and Consensus Chart. You can get there by clicking on the ticker in the table. That'll take you to the Quote Overview page. From there you can select the Price and Consensus chart.
The one below is of Sandisk. There you'll see a price chart, along with the annual consensus numbers layered on top. You want to see the consensus line(s) going up, and preferably at an even steeper pace than the consensus that preceded it. And of course, you should see the price following it.
3) You should also look at the Detailed Estimates page. You'll see a link to that page on the left margin. There you'll see the four factors of the Zacks Rank, which includes: Agreement, Magnitude, Upside, and Surprise.
For example, here's a screenshot of the Magnitude table. You'll see the trend of the consensus from what it was 90 days ago, to 60 days ago, to 30 days ago, to 7 days ago, and to current estimate. We're still using SNDK as an example here. And you can see that for the current quarter, its estimates went from $1.27 up to $1.28 today (up 0.79%), and the current year went from $5.39 up to $5.68 (up 5.57%). You can see the same upward trajectory for the next quarter (up 5.67%) and next year (up 9.72%).
Your New Daily Routine
Consider making this your new daily routine.
One of the reasons why some people underperform in their investments is because their universe of familiar stocks is small. And this limits their ability to find new and better stocks. But by scanning the new Zacks Rank #1 list, and then checking out the Price and Consensus chart along with the four factors on the Detailed Estimates page (like the Magnitude we just went over), you'll be amazed at the new and exciting stocks you're getting to know. And the few minutes a day you spend checking them out, could transform your portfolio.
Give it try. You'll be glad you did.
Disclosure: Performance information for Zacks' portfolios and strategies are available at: http://www.zacks.com/performance.