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A Tale of Two Investors, Which One Are You? The market got off to a fantastic start this year, and it hasn't shown any signs of slowing down. We just closed out one of the best first-half performances for the S&P (actually it was the second-best performance since 1998), with a gain of 14.4%. This is notable because first-half gains of this magnitude typically lead to a continuation of gains in the second-half. And sure enough, the second-half started with the S&P gaining another 2.3% in July. All in all, the S&P is up 17.0% for the first 7 months of this year. And it's starting to look like the best is yet to come. So there's a lot to be excited about. But some may be less excited. Quite frankly, some may find the market downright frustrating, as fearful headlines and bouts of volatility have spooked many investors. Don't get me wrong, there are plenty of investors handily beating the market. But too many are underperforming. One of the reasons why so many people are not seeing the kinds of returns they want is because they don't know of new stocks to get into. They find themselves in mediocre stocks because they don't know of anything better instead. I think for some, their knowledge or 'universe' of familiar stocks is relatively small and this limits their opportunity of getting into better ones. Which Half Are You In? Roughly half of the companies in the S&P are beating the index and showing positive returns this year. But that means roughly half of the stocks in the S&P are underperforming the Index. Even 'good' companies like Campbell Soup; they're down -12.2%. Or Clorox; which is down -18.0%. Or Take-Two Interactive; down -23.6%. So what gives? I don't single these out so you can feel bad if you have them. But instead, to stop and think about 'why' you have them. Nobody invests so they can underperform the market. But if you are – why? You don't have to. If you're underperforming the market, that means you have more of these types of laggards in your portfolio than leaders. How the Other Half Lives Of course, there are a lot of big names beating the S&P too. Take Exxon Mobile, or Goldman Sachs, or Ford for example. All are outperforming the S&P with gains of +38%, +43% and +52% respectively. But now let's move outside of the S&P. Did you ever hear of a company called Radnet? What if you did? It has outperformed the market by gaining +91.4% since the start of the year. Or Grindrod Shipping? They're up +176.7%. Or Apollo Medical? Up by +402.7%. (By the way, these are all Zacks Rank #1 stocks.) There are hundreds and hundreds of stocks producing fantastic gains that many people may never have even heard of. What about you? How many times have you heard about a stock or read about a stock that skyrocketed – only to think to yourself; "if only I knew about that stock ahead of time, I would have been in that." Continued . . . | ||||||
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| Expand Your Universe and Pick Better Stocks Increasing your stock knowledge and awareness of new and better stocks is easier than you think. And you don't have to reinvent the wheel.
Once you know what to look for, and how to pick better stocks, it can transform your portfolio. You don't need to turn yourself into an analyst to beat the market. Just focus on what works, and apply those methods consistently. But you're not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 150 or so. Still too many to trade at once. So the next step is to get that list down to a smaller, actionable list of stocks that are right for you. Know Thyself It's important to know what kind of trader you are, or want to be. There are many different investing styles out there. The four main fundamental styles are Momentum, Aggressive Growth, Value, and Growth and Income. You can also apply Technical Analysis to any of these styles, and others as well. Just make sure you employ proven stock picking techniques to get the most out of each style. Did You Know If you're an Aggressive Growth investor; did you know that stocks with the highest growth rates perform almost as poorly as those with the lowest growth rates? It's true. This is because companies with the highest growth rates are often unsustainable. And once those sky-high growth rates start to come down, even though they may still be spectacular, the price of the stock will fall back down to earth as well. For example, a company earning 1 cent a share, that is now expected to earn 6 cents, has a 500% growth rate. But, if it receives a downward estimate revision to 5 cents, that's a significant drop. Even though it still has a 400% growth rate, the estimates were just reduced by -16.7% and the price is likely to follow. If you've ever wondered how a stock with a triple-digit growth rate could possibly go down -- that's how. Instead, I have found that comparing a stock to the median growth rate for its industry is the best way to find solid outperformers with a lesser chance to disappoint. And focusing on companies with growth rates above the median, but less than 50%, has produced some of the best results. If you're a Value investor; do you know which valuation metrics produce the best results? Better yet, do you know what valuation ranges have the highest probability of success? In my testing, I have found that the Price to Sales ratio (P/S) is one of the best valuation metrics out there. And that stocks with a P/S ratio of less than 1, by far, produce the highest returns. Between 1-2 still produce stellar results. And between 2-3 outperform the market. But once you get over 4, there is a higher probability of losing on that stock than winning. That, of course, does not mean all stocks with a P/S ratio above 4 will go down. But if the odds of winning are greater below 1 (or at least below 3) and worse above 4, then by simply focusing on stocks in the optimum valuation range, you are now one step closer to picking a winner. Stock Picking Secrets of the Pros One of the best ways to get into winning stocks is to see what the pros, who use these methods, are picking. Whether you're a growth investor, or a value investor, prefer fast-paced momentum stocks, or mature dividend-paying income stocks, there are certain rules the experts follow to maximize their gains. This applies to large-caps and small-caps, biotech and high-tech, ETF's, stocks under $10, stocks about to surprise, even options, and everything in between. Regardless of which one fits your personal style of trade, just be sure you're following proven profitable methods and strategies that work, from experts who have demonstrated their ability to beat the market. The best part about these strategies and stock picks is that all of the hard work is done for you. There's no guesswork involved. Just follow the experts and start confidently getting into better stocks on your very next trade. The Easy Way to Target Market-Beating Returns Before you buy another stock, ETF, or option, I invite you to look inside all of Zacks' private trading and investing portfolios for the next 30 days. Then you can see the moves our experts are making – in real time. Our portfolios gave investors the chance to close 250 double- and triple-digit winners in 2020 – including plenty of stocks most investors would never have found on their own. That's an average of nearly one big winner for every day the market was open. And we've already closed 160 double- and triple-digit gains this year. ¹ No other research organization offers anything quite like this see-everything Zacks Ultimate arrangement. As a bonus, when you get started today, you'll get access to our Ultimate Four Special Report, absolutely free. It reveals 4 stocks that were each hand-picked by our team of experts to have the greatest upside potential this quarter and beyond. I encourage you to look into this right away. But don't delay. The deadline for you to take advantage of this special opportunity is midnight Sunday, August 8. Give Zacks Ultimate a try and download the Ultimate 4 report today » Thanks and good trading,
Kevin Matras serves as Executive Vice President of Zacks.com and is responsible for all of its leading products for individual investors. He invites you to download Zacks' newly released Ultimate Four Special Report before this weekend's deadline. | ||||||
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| ¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". https://www.zacks.com/terms_of_service Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or US investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through June 28, 2021. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank #1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance_disclosure for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
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