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Which stock research platform is better, Zacks or Seeking Alpha?
After using both Zacks and Seeking Alpha, please allow me to share with you my experience using them.
Hopefully, I can help you make an informed decision.
Zacks Vs Seeking Alpha In A Glance
I think Seeking Alpha is better than Zacks when it comes to proprietary stock ratings because I am more convinced by Seeking Alpha’s methodology for calculating its quantitative ranking than Zacks’ method for calculating Zacks’ stock ranking.
Zacks Rank is essentially just an analysts’ earnings estimate revision indicator while Seeking Alpha’s quantitative rating looks at valuation, growth, profitability, momentum and analysts’ earnings estimate revision.
On top of that, I think Seeking Alpha has a more user-friendly platform and also makes it very easy for investors to analyze stocks’ financials and do peer comparisons while Zacks’ platform looks outdated and difficult to navigate and research stocks.
Pricing-wise, Seeking Alpha also offers more value for money.
Zacks Vs Seeking Alpha: Stock Rating
Both Zacks and Seeking Alpha give you stock ratings (or stock ranking) to help you with your investment decisions.
But, how they calculate their stock ratings (or stock ranking) differs greatly.
So, which stock rating is more reliable?
Let’s dive in to see the difference between the methodologies used by Zacks and Seeking Alpha to derive stock ratings.
So, how is Zacks Rank calculated?
Before we go into the details of how the stock ranking is determined, let’s first understand what is the strategy behind Zacks’ stock-ranking 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 analysts’ earnings estimates.
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 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.
Also, since the only input they use to calculate Zacks rank is the analysts’ earnings estimates, the accuracy of Zacks’ Rank pretty much depends on how accurate the brokerage analysts’ estimates are.
However, if you go and see the analysts’ estimates for many stocks, they could differ widely from each other.
Can you really trust the brokerage analysts’ analysis?
They are the people who follow the companies closely, so they should know better about the companies than most people.
Yes, that’s true.
But, they are not always right.
If you go and look at a lot of the US biotechnology stocks, most of these stocks rated “Buy” by analysts have dropped at least 50% off their high.
Here’s another example.
BABA’s share price has been going down while almost all the analysts rate its stock “Buy”.
Right after its share price hit a historic low in Mar 2022, JP Morgan analyst downgraded BABA to “Sell”.
Then, BABA’s share price started to rally.
In the short term, there are so many factors influencing the stock price.
I don’t think it’s wise to rely solely on analysts or their estimates to make your trading decisions.
Next, let’s look at the performance of Zack’s #1 Rank stocks.
According to its website, a hypothetical portfolio consisting of stocks with Zacks Rank # 1 Strong Buy stocks had an average annual return of 24.8%, compared to an average annual return of 10.9% for the S&P 500 from Jan 1, 1988, to May 2, 2022.
That is very impressive for a hypothetical portfolio.
Naturally, I wanted to find out how they actually measured the performance and whether this performance was indeed true.
From its disclosure on its website, I learned that this hypothetical portfolio was rebalanced monthly from Jan 1, 1988, to Dec 31st, 2013, and thereafter rebalanced weekly from Dec 31st, 2013 to April 2nd, 2018, with zero transaction costs.
It didn’t give any explanation for why it suddenly changed from rebalancing monthly to weekly.
Also, there are a lot of issues with the way the returns are calculated from this hypothetical portfolio.
First of all, transaction costs are considered zero, which was not true back then.
When you buy and sell shares, there is also the bid-ask spread you have to pay.
If you take all these into account, this will reduce the returns.
In other words, the actual returns would be less.
Secondly, to measure the actual performance of Zacks’s Rank # 1 Strong Buy, shouldn’t you buy all these stocks the minute they become Zack Rank # 1 Strong Buy and sell them immediately after they are not?
Rebalancing monthly or weekly doesn’t reflect the true performance at all.
All in all, I have reservations about the results on its website.
Seeking Alpha Quant Rating
Now, let’s look at Seeking Alpha’s stock ratings.
There are three different types of stock ratings:
- SA Author Ratings ‒ ranging from Strong Buy to Strong Sell by Seeking Alpha contributors
- Wall Street Ratings – consensus and price targets on the stock by Wall Street Analysts
- Quant Ratings ‒ based on over 100 metrics, updated daily
The most interesting of all is Seeking Alpha’s proprietary Quant Rating.
It was developed by CressCap, a quantitative analytics and data platform that was acquired by Seeking Alpha.
So, what exactly is Quant Rating, and how does it really work?
Quant rating is derived by comparing over 100 metrics for the stock to the same metrics for the other stocks in its sector.
These metrics include the company’s financial data, stock price performance, and analysts’ estimates of future revenue and earnings.
There are five types of Quant ratings:
- Strong Sell (i.e. a score of 1)
- Sell (i.e. a score of 2)
- Hold (i.e. a score of 3)
- Buy (i.e. a score of 4)
- Strong Buy (i.e. a score of 5)
The advantage of this method is that you can use Quant Rating to find the best performer of any particular industry or sector.
So, how exactly is Quant Rating calculated?
Quant Rating is derived after taking into account the following five “Factor Grades”:
- EPS Revisions
The Factor Grade is determined by comparing the relevant metrics for the factor for the stock to those for the other stocks in the same sector.
For example, to determine the grade for the “Growth” factor, metrics such as past sales growth, projected earnings growth, and stock price performance for the stock will be compared to the same metrics for the other stocks in the same sector.
Then, each factor is assigned a grade, from A+ to F.
Grade A+ means that the stock has the highest growth potential compared to its peers in the same sector.
On the other hand, a grade of F means that the stock has the lowest growth potential compared to its peers in the same sector.
As you can see, EPS Revision is also used as one of the factors for Seeking Alpha Quant Rating.
On the other hand, Zacks uses EPS revisions as the only factor in the calculation of its Zacks Stock Ranks.
Personally, I feel more comfortable with the methodology used for Seeking Alpha Quant Rating.
So, how have Seeking Alpha’s Quant Rating Strong Buy Recommendations performed, compared with S&P 500?
From 2010 to 2022, Seeking Alpha Quant Rating Strong Buy achieved a total return of $174,156 based on $10,000 investment capital while the S&P 500 achieved a total return of $40,721.
Seeking Alpha’s market performance is based on the combination of the backtested and simulated trades from the end of 2009 to the present day of all the daily ‘Strong Buy’ ratings.
Seeking Alpha’s trading strategy consists of being fully invested in the ‘Strong Buy’ stocks with equal weighting, daily rebalancing, and no transaction costs.
Any stock where the rating drops from ‘Strong Buy’ to ‘Buy’ gets sold at the market open.
A computer runs this model daily without human intervention.
To reflect the performance more accurately, Seeking Alpha started simulated trades for all the daily ‘Strong Buy’ Seeking Alpha recommendations from 5th June 2020.
Simulated trading is the virtual trading of their strategy carried out in real time.
Compared with Zacks using a hypothetical portfolio with weekly balancing to calculate performance, I think Seeking Alpha’s Strong Buy performance is more accurate.
So, if you are into stock trading, I would recommend Seeking Alpha’s Quant Rating over Zacks’s #1 Rank.
Zacks vs. Seeking Alpha: Stock Research & Analysis
To help you do stock research and analysis, both Zacks and Seeking Alpha also provide a lot of useful tools:
- Stock Screener
- Individual Stock Analysis
- Stock Style Score ( e.g. Value Stocks, Momentum Stocks, Growth Stocks, etc)
- Fundamental & Financial Data for Stocks
So, is there any difference?
In terms of stock screener, both Seeking Alpha and Zacks provide you with pre-defined stock screens that match your investment style and objective.
Zacks has Earnings Expected Surprise Prediction (ESP) Filter to search for stocks to buy beforehand that have the highest probability of positively surprising for profitable earnings season trading.
Seeking Alpha also had a similar filter called “EPS Revision” that pretty much does the same thing.
On top of that, Seeking Alpha provides a lot more advanced filters for you to choose from, compared to Zacks.
Here is another difference.
Zacks provides you with “Industry Ranks” to find stocks with the most potential to outperform in the future.
It sorts companies into more than 250 industry groups to calculate the average Zacks Rank for all of the stocks in the industry.
Basically, this Industry Rank is a derivative of the Zacks Rank.
The logic goes that if the Zacks Rank for one particular industry group is higher than others, then it would outperform the other industry groups.
It’s kind of a no-brainer.
When the banking industry is expected to do well, generally all banking stocks go up.
So, I don’t really see anything unique about this “Industry Rank”.
For Seeking Alpha, there is also “Industry Rank”.
But, the “Industry Rank” refers to the relative ranking of the stocks in the same industry group.
So, you can find the best-performing stocks in a particular industry or sector.
Seeking Alpha also makes it very easy for you to compare all the stocks in the same industry.
Let’s say you are interested in the Semiconductor Industry.
Seeking Alpha lets you compare all the stocks in the “Semiconductor Industry” in terms of Valuation, Growth, Profitability, Momentum as well as EPS Revision.
In terms of individual stock analysis, Zacks’ Equity Research Reports cover more than 1,000 of the most widely followed stocks.
All the reports come from Zacks’ analysts who provide analysis of each company’s fundamentals, and growth prospects.
On the other hand, Seeking Alpha’s stock analysis comes from this huge group of contributors, covering thousands of stocks from all over the world.
So, its stock coverage is much wider than Zacks.
On top of that, Seeking Alpha also gives you access to all the latest stock upgrades and downgrades by investment banks and Wall Street analysts.
Personally, I find it much easier to do my stock research and analysis on Seeking Alpha‘s platform.
Its interface is more user-friendly and very easy to navigate.
Most importantly, I can find everything I need there.
Zacks vs. Seeking Alpha: Pricing
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 its experts
In terms of pricing, Zacks Premium is charging you $249 a year (i.e. $20.75/month) with a free 30-day trial.
For Seeking Alpha, there are three types of pricing plans:
- Basic: Free
- Seeking Alpha Premium:
- Seeking Alpha Pro: $2400/year (mostly for hedge fund managers)
With the basic free version, you can only get very limited access to Seeking Alpha stock in-depth news and analysis.
You also won’t get access to Seeking Alpha Author Rating and Quant Rating, Top-rated stocks, and all the premium stock analyses.
So, is it worth paying for Seeking Alpha Premium?
$19.90/month works out to be about $0.66/day.
An average Starbucks drink is about $2.75.
So, it’s very affordably priced.