For new and old investors, taking full advantage of the stock market and investing with confidence are common goals. Zacks Premium provides lots of different ways to do both.
Featuring daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, the research service can help you become a smarter, more self-assured investor.
Zacks Premium includes access to the Zacks Style Scores as well.
What are the Zacks Style Scores?
The Zacks Style Scores, developed alongside the Zacks Rank, are complementary indicators that rate stocks based on three widely-followed investing methodologies; they also help investors pick stocks with the best chances of beating the market over the next 30 days.
Each stock is assigned a rating of A, B, C, D, or F based on their value, growth, and momentum characteristics. Just like in school, an A is better than a B, a B is better than a C, and so on -- that means the better the score, the better chance the stock will outperform.
The Style Scores are broken down into four categories:
Value Score
Value investors love finding good stocks at good prices, especially before the broader market catches on to a stock's true value. Utilizing ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and many other multiples, the Value Style Score identifies the most attractive and most discounted stocks.
Growth Score
Growth investors are more concerned with a stock's future prospects, and the overall financial health and strength of a company. Thus, the Growth Style Score analyzes characteristics like projected and historic earnings, sales, and cash flow to find stocks that will see sustainable growth over time.
Momentum Score
Momentum trading is all about taking advantage of upward or downward trends in a stock's price or earnings outlook, and these investors live by the saying "the trend is your friend." The Momentum Style Score can pinpoint good times to build a position in a stock, using factors like one-week price change and the monthly percentage change in earnings estimates.
VGM Score
What if you like to use all three types of investing? The VGM Score is a combination of all Style Scores, making it one of the most comprehensive indicators to use with the Zacks Rank. It rates each stock on their combined weighted styles, which helps narrow down the companies with the most attractive value, best growth forecast, and most promising momentum.
How Style Scores Work with the Zacks Rank
A proprietary stock-rating model, the Zacks Rank utilizes the power of earnings estimate revisions, or changes to a company's earnings outlook, to help investors create a successful portfolio.
Investors can count on the Zacks Rank's success, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988, more than double the S&P 500's performance. But the model rates a large number of stocks, and there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day.
With more than 800 top-rated stocks to choose from, it can certainly feel overwhelming to pick the ones that are right for you and your investing journey.
That's where the Style Scores come in.
To maximize your returns, you want to buy stocks with the highest probability of success. This means picking stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you find yourself looking at stocks with a #3 (Hold) rank, make sure they have Scores of A or B as well to ensure as much upside potential as possible.
As mentioned above, the Scores are designed to work with the Zacks Rank, so any change to a company's earnings outlook should be a deciding factor when picking which stocks to buy.
Here's an example: a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one with Style Scores of A and B, still has a downward-trending earnings outlook, and a bigger chance its share price will decrease too.
Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.
Stock to Watch: RTX (RTX)
In July 2023, Raytheon Technologies was renamed as RTX Corporation. On Apr 3, 2020, Raytheon Technologies was formed following the completion of merger between United Technologies and Raytheon Company. Based in Waltham, MA, Raytheon Technologies has emerged as an aerospace and defense company, with pro-forma combined annual revenues of $74 billion as of the end of 2019, providing advanced systems and services for commercial, military and government customers worldwide. The company currently operates through the following four business segments:
RTX is a #3 (Hold) on the Zacks Rank, with a VGM Score of B.
It also boasts a Value Style Score of B thanks to attractive valuation metrics like a forward P/E ratio of 14.48; value investors should take notice.
One analysts revised their earnings estimate upwards in the last 60 days for fiscal 2023. The Zacks Consensus Estimate has increased $0 to $4.99 per share. RTX boasts an average earnings surprise of 7.9%.
With a solid Zacks Rank and top-tier Value and VGM Style Scores, RTX should be on investors' short list.
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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.
