Zacks Scores on my stocks

Investment Analysis Clubs Saul’s Investing Discussions
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I’ve already written how the Schwab rankings on my stocks are usually C’s, D’s, E’s, and F’s. Even in years when I gain 75% investing in them. They are undoubtedly value scores.

Zacks, on the other hand seems to rate on the basis of beating estimates, expectations of beating estimates, analysts raising estimates and stock price expectations, and other factors that I’m not aware of. They are rated 1 to 5 with one being best and 5 being worst, and are in a nice bell shaped curve with 1’s and 5’s being rare (5% each of total?) and 40% in the middle at 3, and perhaps 25% each for 2 and 4.

My stocks usually seem to get rankings of 2 or 3 with an occasional 4 and a rare 1.

Today their rankings were

3 - Alteryx, Datadog, Okta
2 - Coupa. Crowdstrike
1 - Zoom moved up today to a 1 ranking

Now before you get excited about this, you need to sit back and realize that these rankings make no particular sense. Why, for instance, would Alteryx have just a 3, while Coupa has a 2.

There are also sub rankings on Value, Growth, and Momentum, and a VGM rating combining those three.

All my stocks are rated F on value :grinning:.

On growth, four are rated A and Datadog and Zoom are rated D ???

Wait, you haven’t heard the best. On momentum, Alteryx which was up 32% this week, is rated F while Crowd was rated A. does that make any sense at all. Zoom got a C on momentum.

And the best was, putting together Zoom’s F on Value, D on growth, and C on momentum, it had a combined VGM rating of F. And it got an overall Zack’s Rank of 1 ??? (at least they got that part right, but how does it all make any sense).

But that’s why I’ve given up on any ratings except our own, here on the board.

Saul

A link to the Knowledgebase for this board is in the Announcements panel that is on the right side of every page on this board.

For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially “How I Pick a Company to Invest In,” and “Why My Investing Criteria Have Changed,” and “Why It Really is Different.”

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I gave up on my brokerage’s ratings long ago. Here are some of our top stocks, with ratings from brokerage’s most recent analyst reports…

Alteryx – SELL

Growth – A-
Value – D
Profitability – C
Cash Flow – B

Zoom - SELL

Growth – A-
Value – C
Profitability – C
Cash flow – B+

Okta – SELL

Growth – B-
Value – D
Profitability – C
Cash Flow – B-

CrowdStrike – SELL

Growth – B-
Value – C
Profitability – D
Cash Flow – B+

Coupa – SELL

Growth – B
Value – F
Profitability – D
Cash flow – D

Datadog – NOT RATED

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Funny though, the mere fact that seemingly intelligent people (such as financial analysts over at zachs) can come up with such bogus predictions is further evidence that you, me, and the rest of this board will be generating alpha for a longgggg time.

If everyone agreed with us, then we wouldn’t have nearly as much money to make, so I’m actually grateful for all the nay sayers.

Case in point: I’m grateful for the people who sold Alteryx down to $80/share, so I could buy it so cheaply.

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There was a book written in 1999 by Robert Sheard, a TMF contributor at the time, called “Unemotional Investor” where he devised a screen using Value Line’s #1 for Timeliness stocks and bought the top 5 ranked EPS and RS stocks by Investor’s Business Daily and called it the “Unemotional Growth 5” screen, which performed well in the bull market of the nineties but fell apart in the 2000. Now nobody talks about it and I don’t hear of anyone using Value Line anymore.

For anyone unfamiliar with Value Line, they have been around for many decades and ranked stocks as buys or sells depending on how they traded above or below their “Value Line”, which was simply some multiplier of their EPS. The goal was to buy the cheapest stocks and sell the most expensive. Then in 1965 they came up with a “Timeliness” model which ranked stocks based on beating their earnings estimates and high relative strength. Valuation was not a factor. #1 for Timeliness ranked stocks performed much better than both #5 ranked stocks as well as the Dow Jones. In recent decades however, this outperformance has dwindled and I’m not even sure if they outperform anymore.

But anyways The Timeliness model Value Line used significantly outperformed their Value Based namesake “Value Line” system and is what they are known for. Investor’s Business Daily’s EPS and RS (Relative Stength) strategy again, are likewise momentum/growth based screens.

I have not seen any screen over the years that I felt worth blindly investing in as some mechanical investor. We don’t even know the performance of these broker account rankings, but just the fact they’re there, I have little faith in them with my experience with rankings and screens. I know of no mechanical methodology that I believe offers superior returns. I am suspicious of the IBD 50 past performance because I have seen them suddenly remove stocks from their rankings the day a stock has a huge gap down on bad news and don’t count it as part of their performance. When I saw that I was quite surprised and disappointed.

As far as Zack’s goes, I am interested in their service as well because it is also a momentum based system that takes into account beating earnings estimates and high relative strength. They say their top rated stocks returned over 30% a year over the last few decades. I signed up for a free trial but couldn’t get these stock rankings and instead was blasted with a bunch of irrelevant articles and sales pitches.

So it would make sense that one service that takes a value based approach would put OKTA, AYX, and all the rest as “avoids” while Zacks and the rest would rate them as “buys.” It all depends on whether the ranking system is growth/relative strength based or valuation based.

I never underestimate the difficulty in the market and I assume nothing about guaranteed future alpha.

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I have this in my notes for this month, but DDOG was upgraded to a Rank#1 stock by Zacks

https://www.zacks.com/stock/news/853034/datadog-ddog-upgrade…

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If you use Fidelity, I found that when checking up on a stock
at the “Analysis Opinion” tab and then “1 year History” chart
of the stock’s rating,
Needham and William Blair have been the most consistent.
They have had a BUY on most of Saul’s and
Vinegar’s picks from the get-go.
All the others seem to have vacillated in and out for months.
Example: None of the major analysts had anything positive
about BILL; but those two did and I stayed in- good thing.

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