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So, which stock advisory service is more suitable for you, Motley Fool or Zacks?
In this review, I am going to examine both Motley Fool and Zacks stock-picking services in great detail, so you will have all the information you need to make a more informed decision.
First of all, let’s take a look at Zacks Premium.
So, what is Zacks Premium?
Zacks Premium is a paid subscription service to provide traders and investors with investment tools and research called “Zacks Rank”(i.e. a type of rating)
It does not give you specific stock picks like Motley Fool.
Instead, it assigns a Zacks Rank to each of the stocks that it tracks to help you make your own investment decision.
So, what is Zacks Rank?
How do they calculate the Zacks Rank?
Before we go into the details of how the stock ranking is determined, let’s first understand what is the strategy behind its stock-picking system.
Zacks’ stock ranking is founded entirely on one premise:
“Earnings estimate revisions are the most powerful force impacting stock prices.”, according to Zacks’ Founder and CEO, Len Zacks,
So, what that means is that if the stock’s earnings estimate is revised higher, then the Zacks’ rank of the stock will be high.
Conversely, if the stock’s earnings estimate is revised lower, then the Zacks’ rank of the stock will be low.
Now, what does Zacks get all the stocks’ earnings estimates?
It collects and analyzes the stocks’ earnings estimates from all the brokerage analysts that follow the stocks.
Then, it uses a mathematical formula to calculate the Zacks’ Rank of the stock based on the following four inputs:
- Agreement (i.e. the extent to which all analysts are revising their earnings estimates in the same direction. The greater the percentage of analysts that are revising their estimates higher, the better the score will be for this component.)
- Magnitude (i.e. the size of the recent change in the current consensus earnings estimate for the fiscal year and the next fiscal year. The higher, the better the score for this component)
- Upside (i.e. the difference between the most accurate estimate as calculated by Zacks and the consensus estimate. A bigger difference between the most accurate estimate and the consensus estimate is better)
- Surprise (i.e. Zacks also factors in the last few quarters’ earnings per share (EPS) surprise. Companies with a positive earnings surprise are more likely to surprise again in the future)
Each one of the above-mentioned components is given a raw score which is then used to calculate Zacks Rank.
As this raw score is recalculated every night, Zacks Ranks will be updated every day as well.
There are a total of 5 different ranks:
- Zacks Rank #1 (i.e. Strong Buy)
- Zacks Rank #2 (i.e. Buy)
- Zacks Rank #3 (i.e. Hold)
- Zacks Rank #4 (i.e. Sell)
- Zacks Rank #5 (i.e. Strong Sell)
When Zacks Rank issues a “Strong Buy” or “Buy” (Zacks Rank #1 or #2), what it means is that the stock’s earnings estimates are rising.
If the stock’s earnings are going to be more than expected, then the stock would be undervalued and the stock price would likely go up.
When Zacks Rank issues a “Strong Sell” or “Sell” (Zacks Rank #5 or #4), what it means is that the stock’s earnings estimates are declining.
If the stock’s earnings are going to be less than expected, then the stock would be overvalued and the stock price would likely go down.
However, these stock ratings are ONLY for the short term trading (i.e. the next 1 to 3 months), but not for long term investment.
Publicly traded companies are required to report their quarterly earnings, so the “earnings estimate revisions” indicator that Zacks uses is ONLY valid for at most one quarter.
So, if you are into stock trading and trying to profit from the short-term price movement, then you can incorporate Zack’s rank into your own trading analysis and make your stock buying or selling decision.
Now, what exactly can you expect to get when you sign up for Zacks Premium Subscription?
When you subscribe to Zacks Premium, you will get access to the following:
- Zacks #1 Rank List (i.e. this list of short term trading picks consists of Zacks Rank #1 (Strong Buy) stocks – the top 5% with the most potential )
- Equity Research Reports
- Zacks Industry Rank (i.e. this is used to find the best stocks in the best industries)
- Earnings ESP (i.e. Expected Surprise Prediction) Filter (e.g. it can be used to search for stocks to buy beforehand that have the highest probability of positively surprising for profitable earnings season trading)
- Focus List of 50 stocks for the long haul (i.e. selected by Zack’s Director of Research Sheraz Mian based on their earnings momentum. Each pick comes with a report that details the reasons behind it)
- Zacks Confidential: Access includes hand-selected picks and insights from our experts
How much does Zacks Premium cost?
It costs $249 per year with a free 30-day trial period.
So, what is Motley Fool?
Motley Fool is one of the leading stock research and analysis websites in the world.
It was founded by two bothers, David Gardner and Tom Gardner.
So, who is David Gardner and Tom Gardner?
They both started investing at a very young age and have decades of experience in stock investing.
Also, they are best-selling authors of several investment books and are often invited on major financial news channel CNBC to share their views on the stock market.
Motley Fool not only provides a lot of free stock market analysis, but it also offers a number of premium investment advisory services.
Two of its most popular stock investing newsletter subscriptions are “Motley Fool Stock Advisor” and ” Motley Fool Rule Breakers” which are led by David and Tom Gardner and their investment team.
Unlike Zacks Premium which is mostly about short term stock trading picks, Motley Fool is specifically focused on offering long term stock picks.
So, what investment strategy does Motley Fool use to pick their stocks?
Both David Gardner and Tom Gardner believe that you should only “invest in great businesses, not stock tickers“, especially great businesses that have huge growth potential and are poised to be the market leader in the future.
Here are just some of the criteria they look at:
- Sustainable competitive advantage over its competitors (i.e. powerful branding, patents, cost leadership, unduplicable distribution systems, etc)
- Dominate the industry (i.e. it has a significant market share in the industry)
- Strong management team (i.e. the management team of the company must be competent and experienced)
- Good financials (i.e the company is in very good financial health with strong earnings, positive cash flow, and relatively low debt)
Between them, there is a slight difference in investment style.
Tom Gardner: He is more of a value investor like Warren Buffet and always picks companies that are fundamentally strong and it’s currently being undervalued.
Generally, value stocks are more stable and less volatile, and their stock prices go up steadily over time.
David Gardner: He is more of a growth stock investor who focuses on picking great companies that are in the emerging industries and have huge growth potential to become the next market leader. (Think Amazon and Netflix 10 years ago)
Generally, growth stocks are more volatile, but their potential returns will be much greater than value stocks in the long term.
Both of them make stock recommendations through Motley Fool Stock Advisor, so you can get the best of both world – Value stocks and Growth stocks.
Now, let’s look at how their stock picks have performed so far.
Below is the performance comparison between Motley Fool Stock Advisor and S&P 500 between Feb, 2002 and May, 2020. It has significantly better returns than the S&P 500 for the same time period. Now, let’s look at the individual stock picks and their performance. As of May 2020, average Motley Fool Stock Advisor recommendations have returned over 399.5%, with over 100 stock recommendations with 100%+ returns Here are just some of their best-performing stock picks:
- Shopify: it is up 389%
- Amazon: it’s up 15,295%
- Netflix: it’s up 18,410%
- Zoom: it’s up 95%
- Okta: it’s up 421%
Just imagine that you actually found out about these great stocks way before everyone else did.
So, what do you actually get when you subscribe to Motley Fool Stock Advisor?
Below is what you will get:
- You will receive two stock recommendations every month, as well as their monthly “Best Buys Now” from legendary investors Tom and David Gardner
- On the first Thursday of the month, you will receive Tom Gardner’s stock recommendation
- On the second Thursday, you will receive Tom’s 5 New Best Buys Now
- On the third Thursday, you will receive David Gardner’s stock recommendation
- and on the fourth Thursday, you will receive David’s 5 New Best Buys Now
- You will receive timely updates on all the stock picks as well as a real-time email notification when it’s time to sell, so you are never left wondering what to do
- You gain instant access to all past Motley Fool’s Stock Advisor recommendations
- You gain instant access to all of their stock reports
- The Motley Fool’s Top 10 Best Stock to Buy Right Now (which features some of their recent picks that still offer the best potential return).
- The Motley Fool’s Top 5 Starter Stock (which features the ideal stocks that should be the foundation of any new investor’s portfolios.)
So, how much does Motley Fool Stock Advisor cost?
Its annual membership is only priced at $199 a year.
What’s more, right now, there’s a special discount of 50% OFF when you click the link here to try it out for 30 days 100% risk-free.
So, for $99 a year- that’s just $1.90 a week– you can gain unlimited access to their library of expert stock recommendations which are carefully selected to help you grow your wealth.
Zacks Premium Vs Motley Fool Stock Advisor
So, which one is better for you, Zacks Premium or Motley Fool Stock Advisor?
In terms of stock advice, Zacks Premium offers Zacks Rank #1 stocks which are good for short term stock trading (i.e. it can be used to help you predict the price movement for the next 1 to 3 months).
Basically, these are NOT specific stock trading picks with entry price, exit price and cut loss point.
It’s just a tool (i.e. Zacks Rank) that you can use to help with your own stock trading analysis.
On the other hand, Motley Fool Stock Advisor offers you specific stock picks for long term investment (i.e. hold the stocks for at least 1 to 3 years) with detailed research reports which outline the reason behind the recommendation.
For all the Motley Fool stock picks, they will send you real-time updates on the stocks whenever there is any news as well as real-time alerts when they think it is time to sell.
So, you won’t be left wondering what to do after you decide to follow their stock recommendation.
In terms of stock-picking strategy, Zacks essentially uses a single indicator called ” Earnings estimate revisions” and a mathematical formula to calculate the stock rank.
On the other hand, Motley Fool uses a time-tested investment strategy with strict stock selection criteria to make stock recommendations.
In terms of track record, Motley Fool has a very impressive track record.
As of May 2020, average Motley Fool Stock Advisor recommendations have returned over 399.5%, with over 100 stock recommendations with 100%+ returns Here are just some of their best-performing stock picks.
For Zacks Premium, it says that it has more than doubled the S&P 500 with an average gain of +23.5% per year from January 1, 1988 to May 4, 2020 with Zacks #1 Rank stock list.
Personally, I find this claim a bit confusing.
First of all, let’s say its subscribers buy the stocks immediately the minute it appears on the Zacks #1 Rank.
Then when do they sell the stock?
Do they sell it immediately when it gets kicked out of Zacks #1 rank, or when it appears on Zacks #5 rank (strong sell)?
So, what I feel is that Zacks Rank is more of a tool than specific stock picks with clear buy and sell recommendation.
At the end of day, you need to decide whether you can get a lot of value out of this tool because this is essentially what Zacks Premium is offering.
Although you also get things like a Focus List of 50 stocks selected by Zack’s Director of Research Sheraz Mian, I don’t really fancy this because I don’t even know this guy and his track record.
In terms of pricing, Zacks Premium is charging you $249 a year with a free 30-day trial while Motley Fool Stock Advisor costs $199 a year with a 30-day unconditional money-back guarantee.
Right now, there’s a special discount of 50% OFF when you click the link here to try Motley Fool Stock Advisor out for 30 days 100% risk-free.
Try out Motley Fool Stock Advisor For 30-Days Risk-Free Now
So, to sum it up, if you are a stock trader (i.e. buy and sell stocks frequently and hold the stock for a very short period of time), then you might find Zacks Rank useful in your stock trading analysis.
But, if you are investing for the long term and are looking for good stock recommendations with a proven track record, then I would recommend Motley Fool Stock Advisor.