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Which is more suitable for you, Motley Fool or Zacks?
I have been using both Motley Fool and Zacks, please allow me to share with you my experience including all the pros and cons of using them and whether there are any better alternatives you could consider.
Hopefully, I can help you make an informed decision.
Zacks
Zacks Premium
Zacks Premium is a paid subscription service that provides traders and investors with tools and research reports to help them make investment decisions.
As a Zacks Premium member, essentially you will be using the following:
- Zacks Rank + Style Score
- Zacks Industry Rank
- Zacks Stock Screener
- Stock Research Reports by its analysts
The most frequently used would be Zacks Rank, which is a type of ranking assigned to stocks with #1 being Strong Buy and #5 being Strong Sell.
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.
To put it simply, if more analysts agree that the earnings estimates should be revised upward and the upward revisions are bigger, then Zacks would assign a higher (i.e. more favorable) rank to the stock.
However, there is a drawback to this methodology.
The accuracy of Zacks Rank entirely depends on how accurately the brokerage analysts can estimate the underlying company’s earnings.
The truth is that all analysts use ASSUMPTIONS in their financial modeling to estimate future revenue and earnings.
Assumptions are rarely 100% correct.
In fact, even a small change in their assumptions (e.g. the estimated growth rate in the revenue) could lead to very big differences in the analysts’ conclusions.
On top of that, if there are very few analysts covering the stock (e.g. 2 or fewer), you need to pray that these two people really know their stuff.
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 Zacks Ranks are ONLY for short-term trading (i.e. the next 1 to 3 months), but not for long-term investment.
Here’s why.
Publicly traded companies are required to report their quarterly earnings.
If a company suddenly reports surprise better-than-expected earnings and adjusts its previous forward guidance upwards, then analysts would most probably rush to revise their earnings estimates upwards.
This will have an immediate and positive impact on Zacks’ Rank.
The next “earnings estimate revision” will most likely happen when it reports its next quarterly earnings which is about 3 months away, unless the company releases an earnings-related announcement before that.
So, the “earnings estimate revisions” indicator that Zacks uses is ONLY valid for at most one quarter.
Do I find Zacks Rank useful?
Personally, I am not convinced by using one single “earnings estimate revisions” indicator to trade stocks, although I do agree with the logic that earnings estimate revisions are probably positively correlated with stock price movements.
Why?
Because there are just so many different factors influencing the stock market and stock prices every day.
To help you increase the odds of a winning trade, you need way more than just an “earnings estimate revisions” indicator.
Maybe the Zacks team realizes that as well.
Recently, they started to provide more tools such as Style Score.
The Style Scores are a complementary set of indicators.
The scores are based on the trading styles of Value, Growth, and Momentum.
There’s also a VGM Score (‘V’ for Value, ‘G’ for Growth, and ‘M’ for Momentum), which combines the weighted average of the individual style scores into one score.
I welcome this addition of Style Scores, but I think you can get all these and more from Seeking Alpha Quant Ratings.
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.
Zacks Investor Collection
Zacks Investor Collection is a bundle of subscription services for long-term investors.
It gives the real-time buy and sell signals from all of their long-term investor portfolios:
- ETF Investor
- Income Investor
- Value Investor
- Stocks Under $10
- Zacks Top 10
- Home Run Investor
All these stock recommendations are mostly based on the Zacks Rank which is essentially an “earnings estimate revisions” indicator.
On top of that, this indicator is only valid for 1-3 months, but it’s being used to make long-term stock recommendations.
How much does Zacks Investor Collection cost?
It costs $59 per month.
Personally, I think it’s not worth it to pay for stock recommendations that are mostly based on Zacks Rank.
Motley Fool
The Motley Fool not only provides free stock market news but also offers a number of stock-picking services.
One of their most popular stock-picking services is “Motley Fool Stock Advisor”.
Unlike Zacks Premium which is mostly about short-term stock trading picks, Motley Fool Stock Advisor is more focused on making stock recommendations for the long term.
So, what investment strategy does the Motley Fool Stock Advisor team use to pick their stocks?
The Motley Fool Stock Advisor team believes 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 that 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)
First of all, let’s take a look at their track record as of 12th March 2024.
Below is the performance comparison between Motley Fool Stock Advisor and S&P 500 between 2002 and 12th March 2024.
As of 12th March 2024, average Motley Fool Stock Advisor recommendations have returned over 651% since inception while the S&P 500 has returned 150%.
In short, the Motley Fool Stock Advisor has outperformed the market 3 to 1.
But, what about its individual stock picks?
Below is a table that shows you the performance of individual stock picks over the years.
As of 6th September 2023, Motley Fool Stock Advisor has had 173 stock recommendations with 100%+ returns.
[Past performance is no guarantee of future results. Individual investment results may vary. All investing involves risk of loss.]
Will the Motley Fool Stock Advisor always be right about their stock recommendations?
No, because no one can be right about their stock picks 100% of the time.
Let me sidetrack a bit here.
If any stock picking service tells you that they have a close to 100% success rate on their stock picks and can guarantee you high investment returns, you should definitely stay away.
Even Warren Buffet has loss-making stocks in his portfolio, but he still achieves above-average returns because a few big gainers in the portfolio can make up for the under-performers.
What I like about the Motley Fool Stock Advisor is that they are very open and transparent about their bad investments.
As a member, I can see the performance of ALL its past and current stock recommendations (even for closed positions).
Some other stock-picking services that I’ve tried, don’t publish the performance of all their past and current stock recommendations, so it’s not easy for you to find out their true track record.
If you are thinking of getting into stock investing, I highly recommend the Motley Fool Stock Advisor because I think there are a lot of well-researched stock recommendations with long-term growth potential.
By the way, I don’t buy every single stock recommendation by Motley Fool Stock Advisor.
I mainly used Motley Fool Stock Advisor to get stock ideas because they have a track record of finding multi-baggers.
For example, it first recommended Nvidia back in 2005, then again in 2009, then again in 2017.
It first recommended The Trade Desk in 2017, and has recommended it multiple times over the years as shown below.
It first discovered Netflix back in 2003 and has recommended it multiple times over the years as shown below.
So, I like to use the Motley Fool Stock Advisor as an important source of investment ideas.
I will read their research team’s analysis and then also do my own independent research on platforms such as Stock Rover and Morningstar before I decide whether or not I want to invest in the stock.
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 (one stock recommendation on the first Thursday and the other one on the third Thursday of the month). Each new stock recommendation comes with a full analysis of the opportunities and risks
- The current Top 10 Favorite Investment Opportunities are released on the second Thursday of every month
- 10 Foundational Stocks for new investors (regularly updated)
- 5 Exchange-Traded-Funds
- You will receive 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
So, how much does Motley Fool Stock Advisor cost?
Its annual membership is usually priced at $199 a year.
Right now, there’s a special limited-time $89 offer* for new members for the first year when you click the link here to try it out for 30 days with a Membership-Fee-Back Guarantee. (*Billed annually. Introductory price for the first year for new members only. First-year bills at $89 and renews at $199)
So, for $89 a year- that’s just $1.70 a week – you can gain unlimited access to their library of expert stock recommendations which are carefully selected to help you grow your wealth.
Special $89 Stock Advisor Introductory Offer For New Members (Usual Price $199/year)
Zacks Vs Motley Fool
So, which is better for you, Zacks or Motley Fool?
In terms of stock picks, Zacks Premium offers Zacks Rank #1 stocks that 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 gives specific stock picks for long-term investment (i.e. hold the stocks for at least 1 to 3 years) with detailed research reports that 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 Stock Advisor uses strict stock selection criteria to make specific stock recommendations.
In terms of track record, Motley Fool has a very impressive track record.
As of 5 Sep 2023, average Motley Fool Stock Advisor recommendations have returned over 510% since inception while the S&P 500 has returned 132%.
For Zacks Premium, it says that it has more than doubled the S&P 500 with an average gain of +24.17% per year from January 1, 1988, to September 4th, 2023 with Zacks’s #1 Rank stock list.
Personally, I find that the method it uses to calculate its performance is very flawed.
So, the above-mentioned performance is not accurate.
Zacks #1 Rank Strong Buy Stocks’ performance used to be calculated based on monthly rebalancing (by the way, this method produces even more inaccurate returns).
A few years ago, it changed to weekly rebalancing, which is less inaccurate than before but still inaccurate.
Here’s why.
Some stocks stay on the strong buy Zacks #1 list for only one day, based on my observation.
That means these stocks are included in investment returns calculation for a few days longer.
For Strong Buy Stocks that are recommended not at the beginning of the week, they will only be included in the calculation of the return for a few days shorter.
So, what I feel is that Zacks Rank is more of a tool than specific stock picks with clear buy and sell recommendations.
At the end of the 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.
In terms of pricing, Zacks Premium is charging you $249 a year with a free 30-day trial.
For Motley Fool Stock Advisor, its annual membership fee is $199 per year.
What’s more, right now there’s a special offer of $79 on the annual membership for NEW members for a limited time only.
That means you could get the annual membership at $79 per year instead of the usual $199 per year when you click the link here to try it out for 30 days with an unconditional membership-fee-back guarantee.
So, for $79 a year- that’s just $1.60 a week – you can gain unlimited access to their library of expert stock recommendations which are carefully selected to help you grow your wealth.
Special $79 Stock Advisor Introductory Offer For New Members (Usual Price $199/year)
Motley Fool VS Zacks: Verdict
Motley Fool gives specific stock recommendations with long-term growth potential.
Also, it has a proven record of finding stock with market-beating returns.
On the other hand, Zacks offers a stock research and analysis platform (i.e. Zacks Premium) and stock recommendations from its different long-term investor portfolios (i.e. Zacks Investor Collection)
All these stock recommendations are mostly based on the Zacks Rank which is essentially an “earnings estimate revisions” indicator.
Personally, I will not rely on Zacks Rank to make my investment decision (you can read more below).
On top of that, I find that Zacks’ strong buy performance is not accurate.
The method it uses to calculate its performance is very flawed.
Also, I think Seeking Alpha is a much better alternative to Zacks because Seeking Alpha’s Quant Ratings are more robust and advanced than Zacks Rank.
Between Motley Fool and Zacks, I think the Motley Fool is better than Zacks for investors who are looking for stock ideas for long-term investment.
If you are looking for reliable quantitative stock ratings, I would recommend Seeking Alpha to Zacks.
George Rahme says
Thank you,
george Rahme
Mohammed T. Ahmed says
Thankyou for analyzing both the
Companies. Its worth to have
these companies i should keep
both the companies as my stock
advidors and should decide on a timely basis which suits me.