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Is Zacks’s Home Run Investor really good?
What are Zacks’s Home Run Investor’s stock recommendations?
How have these stock picks performed so far?
Can you really achieve above-average returns by following its stock recommendations?
After trying Zacks’ Home Run Investor, let me share with you my experience and also reveal the actual performance of Zacks’ Home Run Investor.
Zacks Home Run Investor Stock Picking Strategy
Zacks Home Run Investor is created to find smaller-cap aggressive growth stocks with home run potential (i.e. 50%, 100%, even 200% potential upside).
Its editor is Brian Bolan.
Typically, these growth stocks are risky.
Supposedly, there are about 30 stocks in the Home Run Investor portfolio to spread the risk out.
But, there are only 8 stock recommendations in the Home Run Investor portfolio as of 11th Oct 2023.
To allow the stock some time to realize its potential, the typical holding period is supposed to be one year or more.
According to this Home Run Investor guide, Brian Bolan’s stock picking strategy combines Zacks Rank and Zacks Industry Rank with Brian Bolan and his team’s top-down analysis and growth and valuation analysis.
Here’s an example of How Brian Bolan picks a growth stock for the Home Run Investor portfolio.
First of all, he only looks at Zacks Rank #5 (strong buy ) or #4 (buy).
Zacks Rank is essentially an earnings estimate indicator. 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. On the other hand, 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.
Also, he likes to see there is a divergence between the Zacks Value Style Score (Low) and Growth Style Score (High).
His reasoning for this preference is that growth investors and value investors look for very different things.
Then, he likes to see a big earnings beat ( preferably consecutively) and the share price reacting very positively to an earnings beat.
Most importantly, he likes to see earnings estimates revised upwards consecutively for the past 3 quarters.
Lastly, he also likes to see growing sales.
Although the PE ratio, PB ratio, and PS ratio are very high, he is comfortable with it because of the high growth rate.
However, the thing with high-growth stocks is that the stock price would tank very quickly if the growth rate started to go down (e.g. Beyond Meat).
So, when does Brian Bolan sell the stocks?
He will sell stocks that are Zacks Rank #5 (Strong Sell) while he will put stocks that are Zacks Rank #4 under review.
However, he will also sell the stock if the stock falls a lot right after it was recommended.
Zacks Home Run Investor Stock Picks
Let’s look at an example of a Home Run Investor stock recommendation.
Sinclair was recommended on 8th June 2023.
Here’s the stock commentary (i.e. stock analysis) you will see, regarding the new stock pick.
As you can see, the analysis is basically regurgitating some of the financial data without any insightful and in-depth analysis of the underlying company.
Then, the position was closed 14 days later on 22nd June 2023.
I found it super bizarre because Sinclair was recommended by Zacks as a top stock pick on 15 June 2023, as shown below.
So, in a matter of 7 days, Brian Bolan and his team changed their opinion about Sinclair?
Here’s the reason Brian Bolan gave about cutting Sinclair at a loss (-17.10 %) in just two weeks:
“I cut two stocks last week and I am cutting one here again this week. I am dropping Sinclair (SBGI) as this stock has done nothing but fall. I simply cannot continue to hold a stock that is down this much this quickly.
Cut SBGI”
What surprises me is that Sinclair was Zacks Rank #1 Strong Buy on 4th July 2023.
As of 11th Oct 2023, Sinclair is currently rated a “Strong Sell” according to Zacks Rank.
From Zacks Rank Strong Buy to Strong Sell, it took less than 3 months.
This is consistent with Zacks Rank being used for short-term trading only.
As you can see Sinclair’s EPS surprise changed from up to down in 3 months, roughly when it was about to report quarterly earnings.
Personally, I feel that there are just too many Zacks Home Run Investor stock recommendations.
Also, most of these stock picks feel like short-term trading picks based on Zacks Rank (which is mainly used for short-term trading) instead of thoroughly researched high-growth stock picks for long-term investments.
Zacks Home Run Investor Portfolio Performance
Home Run Investor portfolio started in 2011.
As of 11th Oct 2023, there are a total of 629 closed trades with 374 losing trades (59.4%) and 255 winning trades (40.6%).
The biggest win is 361.9% over a two-year holding period, while the biggest loss is 60.68% over a month’s holding period.
Assuming equal weighting for all the stocks, the average return of these 629 trades is 0.03%.
So, after 12 years, the Home Run Investor portfolio value stayed flat while the S&P 500 went up 336.92% since 2011.
Now, let’s look at the performance of Zacks’ Home Run Portfolio in 2023 so far.
Below are the closed trades in the Zacks’ Home Run Investor portfolio for the year 2023.
As you can see, a lot of trades were closed just one or two months later.
Also, I don’t think a “home run” (50% -200% potential return) is often achieved in a span of one or two months.
When I am thinking about “Home Run” stocks, I am looking for stocks like Amazon, Netflix, and Monster Beverage 10 years ago.
Below are the current open trades in the Zacks’ Home Run Investor portfolio.
Zacks Home Run Investor Alternatives
First of all, small-cap high-growth stocks are more volatile than large-cap value stocks and large-cap growth stocks.
If you are comfortable with the associated risks and want to get some exposure to high-growth stocks, I think there are other alternatives that you can check out.
For example, I use Motley Fool Rule Breakers to get high-growth stock ideas because it has a proven track record of uncovering really good high-growth stocks.
There are also other stock research and analysis platforms where you can use its stock screener to find stocks that meet high growth criteria such as high sales growth rate year on year, high earnings growth rate, and quarterly earning estimates being revised up consecutively.
Personally, I use Stock Rover (which has a very powerful fundamental stock screener) and Seeking Alpha (I like its proprietary quantitative ratings) to find stock ideas and also do my research and analysis.
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