Harnessing Momentum: Choosing Stocks with the Right Style Scores

Investors across the spectrum, from novices to seasoned players, aim to navigate the stock market with confidence and capitalise on opportunities to achieve better returns. One of the methods to enhance investment strategies is utilizing tools that help in identifying the stocks with the highest potential based on an investor's unique style.

Understanding Zacks Style Scores

The Zacks Style Scores system is an analytical tool designed to grade stocks on multiple characteristics that are essentially related to their investment potential. These features are divided into three categories: Value, Growth, and Momentum, with an overall VGM Score for those incorporating all three styles. Stocks are rated from A to F, where A signifies a high potential for outperformance.

Value Score focuses on identifying undervalued stocks that may be overlooked by the market. It leverages financial multiples to pinpoint the most attractive investments.

Growth Score caters to investors aiming to invest in companies with promising future prospects and robust fiscal health. It factors in earnings, sales, and cash flow forecasts to discern stocks with sustainable growth trajectories.

Momentum Score benefits those who rely on market trends, utilizing price changes and adjustments in earnings estimates to determine optimal entry and exit points for stock positions.

Finally, the VGM Score amalgamates these aspects to provide a holistic view of a stock's potential based on the blended analysis of Value, Growth, and Momentum aspects.

Integrating Style Scores with Investment Strategies

Earnings estimate revisions are at the heart of the Zacks Rank, a proprietary model which aligns with the Style Scores. Stocks with solid rankings alongside favorable Style Scores typically offer a higher probability of success for the investor.

Investors are generally encouraged to consider stocks with a Zacks Rank of #1 (Strong Buy) or #2 (Buy) and accompany them with Style Scores of A or B. It is prudent to consistently monitor earnings outlooks, as even stocks with strong scores may decline if their forecasts are not promising.

Case Study: Crane (CR)

Crane Co. exemplifies an interesting case for analysis. The company, with an illustrious history dating back to 1855, now operates globally with a diverse range of engineered industrial products.

Current data places Crane with a Zacks Rank of #3 (Hold) and a VGM Score of A, which indicates a balanced investment profile. The Momentum Style Score of A coupled with a 3.1% increase in stock price over the last month positions CR as a captivating prospect for momentum investors.

Revisions in earnings estimates by analysts for the fiscal year 2024 have been favorable, with a consensus estimate showing an uptick. The company has a history of surpassing earnings expectations, an aspect that further solidifies its attractiveness as a stock to watch.

Investing, Stocks, Momentum