Read This Before Your Next Trade

Kevin Matras
·9-min read

Since the pandemic lows in late March, the Dow has surged by more than 59%, the S&P by 63%, the small-cap Russell 2000 Index by 70%, and the Nasdaq by 81%!

It’s been a record-setting move.

And both the S&P and Nasdaq are positive for the year, with the Nasdaq recently setting new all-time highs (higher than where it was pre-pandemic).

But the best part is that it looks like there’s a lot more upside to go.

And with expectations for unprecedented growth for the remainder of the year (+35% for Q3 GDP, and double-digits again for Q4), and forecasts for the highest annual growth rate for 2021 in 38 years, it looks like stocks have a lot more upside to go.

Then add in near zero interest rates for the foreseeable future, and the possibility of a vaccine by year’s end (or sooner), and stocks look poised to soar even more.

Although, like any year, there are always some headwinds out there: the economy has not fully reopened; we’re still fighting the virus; and there’s an election coming. So there’s that.

But whether you’re bullish on the market, or a bit wary, it’s now more important than ever to make sure you’re doing everything you can to get the most out of your trades.

Regardless of which camp you put yourself in, there will be distinct winners and losers as we move forward. So before you make your next trade, please read this first to learn how to put the probabilities of success in your favor.

Knowledge Is Power 

We’ve all heard the old adage; knowledge is power.

It’s a great saying because it’s true.

And that saying couldn’t be truer than when it comes to investing.

Take a look at your last big loser for example. After analyzing what went wrong, you soon discover some piece of information that -- ‘had you known beforehand, you never would have gotten into it in the first place’.

I’m not talking about things that are unknowable, like inside information or surprise announcements that can catch even the most professional of professionals off guard.

I’m talking about things that you could have known about or SHOULD have known about before you got in. 

Did You Know?...

• Did you know that roughly half of a stock's price movement can be attributed to the group that it’s in?

• Did you also know that oftentimes a mediocre stock in a top performing group will outperform a ‘great’ stock in a poor performing group?

• And did you know that the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1?

• And did you also know that the top 10% of industries outperformed the most?

More . . .


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The Executive Vice President of Zacks Investment Research, Kevin Matras, is very optimistic about our country’s financial future. As the economy continues to grow stronger, he expects stocks to soar far higher right through the market blips and dips.

But what’s the key to being successful? Knowing the right strategies and where to find stocks that will lead the market as the recovery continues to build momentum.

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Was your last loser in one of the top industries or in one of the bottom industries?

If it was in one of the bottom industries, you should have known to not take a chance on something with a reduced probability of success.

That’s what is meant by ‘knowledge is power’. Knowable things that you need to know.

That’s not to say that stocks in crummy industries won’t go up -- they do. And that’s not to say that stocks in good industries won’t go down -- because they do too.

But more stocks go up in the top industries, and more stocks go down in the bottom industries.

And since there are over 10,000 stocks out there to pick and choose from, why settle for one with a reduced chance of making any money?

Did You Know?...

• Did you know that stocks with ‘just’ double-digit growth rates typically outperform stocks with triple-digit growth rates?

• Did you also know that stocks with crazy high growth rates test nearly as poorly as those with the lowest growth rates? 

Did your last loser have a spectacular growth rate?

If so, and it got crushed, would you have picked it if you knew that stocks with the highest growth rates have spotty track records?

It seems logical to think that the companies with the highest growth rates would do the best. But it doesn’t always turn out to be the case.

One explanation for this is that sky high growth rates are unsustainable. And the moment a more normal (albeit still good) growth rate emerges, the stock gets a dose of reality 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.

Did You Know?...

• Did you know that stocks receiving broker rating upgrades have historically outperformed those with no rating change by more than 1.5 times? And did you know they outperformed stocks receiving downgrades by more than 10 x as much? The next time one of your stocks is upgraded or downgraded, be sure to remember these statistics so you know how the odds stack up and whether they’re for you or against you.

• Did you know that stocks with a Price to Sales ratio of less than 1 have produced significantly superior results over companies with a Price to Sales ratio greater than 1? And did you know that those with a Price to Sales ratio of greater than 4 have typically shown to lose money? That doesn’t mean that all stocks with a P/S ratio of less than one will go up and those over four will go down, but you can greatly increase your odds of success by following these valuations.   

• Did you know that the Zacks Rank is one of the best rating systems out there? And did you know that since 1988, the Zacks Rank #1 Strong Buy stocks have beaten the market in 26 of the last 32 years, with an average annual return of 24.7% per year? That’s nearly 2.5 x the returns of the S&P with an 81% annual win ratio.

• Did you know that two simple filters added to the Zacks Rank #1 stocks significantly increases its returns? What if you did? We have a screen that utilizes these two additional items to narrow that list down to 5 high probability stocks per week. Over the last 20 years (2000 thru 2019), it’s produced an average annual return of 54.1%, which is 9 x the market. That screen is aptly called the Filtered Zacks Rank 5 screen.  

Do you know how well your stock picking strategies have performed?

Whether good or bad -- do you know why?

Do you know if your favorite item to look for is helping you or hurting you?

Beat The Market On Your Next Trade  

With stocks poised for another historic move, there's a simple way to add a big performance advantage for stock-picking success. It's called the Zacks Method for Trading: Home Study Course.

With this fun, interactive online program, you can master the Zacks Rank in your own home and at your own pace. You don’t have to attend a single class or seminar.

Zacks Method for Trading guides you to better trading step by step.

You'll quickly see how to get the most out of the proven system that has more than doubled the market for over three decades. Discover what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market no matter where stock prices are headed.

You’ll get the formulas behind our top-performing strategies suited for a variety of different trading styles. The best of these strategies produced up to +122.2%, +153.0%, and even +156.8% from 2017 through Q2 2020.¹

The course will also help you create and test your own stock-picking strategies.

Today is the perfect time to get in. I'm giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages unfold virtually every trading secret I’ve learned over the last 25 years to beat the market.

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Find out more about Zacks Home Study Course >>

Thanks and good trading,

Kevin

Zacks Executive VP Kevin Matras is responsible for all our trading and investing services. He developed many of our most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course.

¹ The results listed above are not (or may not be) representative of the performance of all strategies developed by Zacks Investment Research.


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