Three Steps to Stock Picking Success - Anatomy of Success

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How does the old joke go: if you want a $1 million portfolio, start with $2 million and then invest in an airline - you'll soon have just $1 million.

It's a mildly funny joke, and at times, totally accurate. But that joke couldn't have missed the mark more than with Southwest Airlines ( LUV ). In fact, if you had started with $2 million when Zacks gave it a Zacks Rank #1 (Strong Buy) earlier this year, it would now be worth $2,515,400 for a sizeable 25.77% return in just 4 ½ short months...and it's still going.

The best part is that the tell-tale clues that could have gotten you into LUV are getting investors into similar opportunities all the time. And these winners are easily found on every day.

The Signal to Get In

On January 10th, 2014, LUV was upgraded to a Zacks Rank #1, giving a clear sign that it was time to get in. (And for those already in, and making money, it was another confirmation to hang on.)

Even though the market was becoming increasingly volatile, it was easy to stay in LUV. Between 1/10/14, they received 20 upward estimate revisions in a row, and two positive EPS surprises, helping to reassure investors that LUV was the place to be. Week after week, estimates steadily climbed from $1.26 to $1.56 for a 23.81% gain.

Not surprisingly, prices followed suit, increasing from $21.03 to $26.45 for a $25.77% return by the end of May. This compares to the S&P 500's 4.41% during that same time.

Below is a chart that illustrates the entire move for LUV from when it became a Zacks Rank #1 (Strong Buy) on 1/10/14 to the end of May (5/30/14). 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 surprises. With each item strengthening the bullish case for LUV, the likelihood was quite high that LUV was going to be a winner.

Chart courtesy of the Research Wizard.

How to Get Stocks Like These on Your Radar Screen Now

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 Southwest Airlines. 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. The one below is picture perfect. And there are hundreds of other just like it. All you have to do it look.

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 the current estimate. We're still using LUV as an example here. And you can see that for the current quarter, its estimates went from 47 cents up to 50 cents today (up 6.38%), and the current year went from $1.33 up to $1.47 (up 10.52%). You can see the same upward trajectory for the next quarter and next year.

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.

Click here to find more Zacks Rank #1 Stocks.

Disclosure: Performance information for Zacks' portfolios and strategies are available at:

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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