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Is Zacks Value Investor really worth it?
What are Zacks Value Investor stock recommendations?
How have these value stock picks performed so far?
Are there any other better alternatives to Zacks Value Investor?
After trying out Zacks Value Investor, Let me share with you my experience and help you make an informed decision.
Zacks Value Investor Stock Picking Strategy
Zacks Value Investor is a stock-picking service provided by Zacks Investment Research.
Zacks Value Investor’s editor is Tracey Ryniec.
So, how does the Zacks Value Investor team help you pick the best value stocks for the long term?
There are three things they will look at.
First of all, they use Zacks Rank to look for companies with earnings exceeding expectations now and possibly in the future.
After that, they use metrics such as the price-to-earnings ratio, price-to-earnings-growth ratio, and book value to look for stocks that trade at least a 25% discount to their peers.
These metrics are typically used by value investors to find value stocks because they believe that a lower PE ratio, lower PEG ratio, and lower PB ratio mean that the stock is cheaper.
Lastly, they want to look for growth stocks (instead of slow-growth stocks) that are trading at a discount.
The reason behind this is that if we buy a slow-growth company trading at a 25% discount to its peers, then once its price goes up to 25%, there is very limited upside.
On the other hand, if we buy a growth stock at a discount, then the upside is more like 50%, 100%, or even 200% because of the long-term growth potential.
Put simply, Zacks Value Investor is looking for value growth stocks that are currently trading at a discount to its peers.
Zacks Value Investor Stock Picks
Let’s look at some of Zacks Value Investor stock picks.
Herc Holdings was recommended on 6th March 2023 for the following reasons:
- Analysts expect earnings to jump 27.4% in 2023 and 11.4% in 2024 (double-digit earnings growth)
- Low forward P/E ratio of 10.1, P/B ratio of 3.8, attractive P/S ratio of 1.6
- PEG ratio of 0.7 which indicates growth and value
- Herc is cheaper than its peer (URI)
11 days later, on 17th March 2023, a Sell Alert was issued for Herc Holdings.
The reason for selling is that Herc Holdings was getting sold off and was down about 26%.
Despite she thinks Herc Holdings was attractive at this level, she decided to cut losses and may get back into one of these companies in the next few weeks.
This seems like short-term trading to me instead of long-term value investing because the only reason for selling is that she wanted to contain losses.
Generally, the reason for value investors to sell off a stock is that there is a material change in the company’s fundamentals and the original thesis for investing in the company is no longer valid.
Investing comes with risk and potential losses should have been thought through before investing.
This is the stock price chart.
After cutting losses at $106.35, the stock price went up to its original purchase price 4 months later, before getting sold off again.
Zacks Value Investor Portfolio Performance
Zacks Value Investor Portfolio started in 2011.
There are five top stock picks:
- InMode Ltd: 346.89% (closed trade)
- Donnelley Finan: 312.71% (closed trade)
- Innovative Industrial Property: 186.93% (closed trade)
- Penske Automotive: 183.75% (closed trade)
- Weight Watchers: 167.84% (closed trade)
As you can see, four of them are stock picks in 2020 and 2019.
The stock market staged a strong rally in 2020 and almost every investor made money in the stock market as long as you bought stocks in 2020.
A lot of stock-picking newsletters such as Motley Fool Stock Advisor also had amazing performance in the year 2020.
So, it’s important to check the performance of the stock picks over a long period of time when there is a bear market, and bull market, and a sideways market.
As of 11th Oct 2023, there are 315 closed trades with 162 losing trades (51.4%) and 153 winning trades (48.6%) from 2011 to 2023.
The biggest gain is 348.69% over a period of 21 months, while the biggest loss is 48.59% over two months.
Assuming equal weighting for all the stocks, the average return is only about 0.1% over a period of 12 years.
Below are the closed trades in 2023 for the Zacks Value Investor Portfolio.
As you can see, unprofitable positions were closed very quickly, sometimes in a couple of weeks and sometimes in a few short months.
Going through the closed trades from 2011 to 2022, I saw a similar pattern which is that losing trades were rarely held for more than a few months.
I didn’t expect it because if thorough research had been carried out and the stocks were truly undervalued good businesses, wouldn’t it make sense to give it more time to see if the stocks could eventually go up?
After all, this Zacks’ Value Investor Portfolio is supposed to be meant for long-term investors, not short-term traders.
Below are the current open positions for the Zacks Value Investor Portfolio.
As you can see, some profitable positions are still open since 2019, 2020, 2021, and 2022.
For the year 2023, there are eight open positions with two trades doing quite well.
Compared to the Home Run Investor Portfolio, the Value Investor Portfolio does not have as many trades.
Overall, I don’t find Value Investor Portfolio’s performance super impressive because there are just too many short-term losing trades to my liking.
Also, it’s very different from what I had expected.
For example, the stock analysis is not as in-depth as I had expected.
If you want to find good undervalued companies, Morningstar might be a more suitable platform because it specializes in uncovering high-quality businesses with sustainable competitive advantages (i.e. Wide Moat) based on in-depth independent research and analysis.
Zacks Value Investor Weekly Commentary
There is also a weekly Zacks Value Investor Commentary that will cover the following:
- Overview of current market conditions and events (e.g. Fed meetings, inflation, etc)
- Update on the current portfolio holdings (e.g. earnings report, analysts’ earnings estimate revisions, etc)
- New stock picks if there are any
- Sell alerts if there are any
For new stock picks, the stock analysis is quite simple and I would prefer an in-depth analysis including things like competitive advantage and potential risks.
Below is an example of the stock analysis in the Zacks Value Investor commentary.
Quite a large part of the analysis is a rehash of what some analysts have commented on the copper price trend and supply and demand outlook.
Personally, I am not confident to just buy based on this type of analysis alone.
By the way, Freeport-McMoran was recommended on 25 March 2022.
Then, less than two months later on 12th May 2022, it recommended cutting losses (a loss of 33.44%) and exiting this position.
Overall, I get the feeling that there is no strong conviction in the stock recommendations.
Zacks Value Investor Pricing
So, how much is Zacks Value Investor?
Zacks Value Investor is sold as part of the Zacks Investor Collection which gives you buy and sell alerts from 7 different investor portfolios including Zacks Value Investor.
Zacks Investor Collection costs $59/month or 495/year.