Discovering Momentum Stocks with Zacks Style Scores for Portfolio Success

Investing in the stock market is a goal shared by individuals of all ages and levels of experience, with the common desire to invest with confidence and to maximize returns. Recognizing strong potential stocks that might outperform the market is a key strategy for investors looking to boost their portfolios. An effective way to identify these types of investments is through tools like the Zacks Style Scores.

Understanding Zacks Style Scores

Zacks Style Scores are a unique method for evaluating stocks using three distinct investment styles, designed to work in conjunction with the Zacks Rank—a proprietary stock-rating model. These scores assign ratings from A to F based on value, growth, and momentum attributes, with A indicating the highest potential for market-beating performance over the next month.

The scores are divided into the following categories:

Value Score assesses stocks for the investment strategy focused on finding undervalued companies. It uses various financial ratios to identify attractive and discounted stocks.

Growth Score targets companies displaying robust financial health and promising future prospects, analyzing factors like earnings, sales, and cash flow trajectories.

Momentum Score aligns with the principle that 'the trend is your friend,' ideal for investors looking to capitalize on the direction of stock price movements or earnings outlooks.

VGM Score is the composite score of all three styles mentioned above, offering a holistic view of a stock's appeal across value, growth, and momentum factors.

The Synergy Between Style Scores and Zacks Rank

The Zacks Rank utilizes earnings estimate revisions to simplify building a portfolio poised for success. With a historical track record of #1 (Strong Buy) stocks yielding an average annual return of over 25% since 1988, the Zacks Rank is a powerful tool. However, given the vast number of highly-rated stocks, Style Scores can refine the selection process further.

Investors should consider stocks with a Zacks Rank of #1 or #2, complemented by Style Scores of A or B for optimal performance. Conversely, stocks rated #4 (Sell) or #5 (Strong Sell), despite high Style Scores, might still exhibit declining share prices due to negative earnings outlooks. Therefore, combining high Zacks Ranks with top Style Scores is recommended for securing better performing stocks.

Spotlight on USA Compression Partners (USAC)

One example of a stock worth watching is USA Compression Partners (USAC). As a major provider of natural gas compression services in the U.S., USAC holds a Zacks Rank of #2 (Buy) and a VGM Score of B, aligned with momentum investing interests thanks to an outstanding Momentum Style Score of A.

The stock has seen an uptick of 0.6% in recent weeks, and with earnings estimate revisions from analysts moving positively for fiscal 2024, the Zacks Consensus Estimate has risen. Moreover, USAC has a history of earnings surprises, which further strengthens its case as an asset worth considering for investors' portfolios.

investment, stocks, momentum