3 Reasons to Love “EER” Investing by Steve Reitmeister – 02/22/2014

I wasn’t always a good investor. Over the past 34 years I’ve made just about every mistake imaginable.

• Jumped in at the peak

• Jumped out too late

• Bought falling knives

• Doubled down on losers

You name it, I probably did it.

By the time I joined up with Zacks Investment Research in August 1999, I had eradicated most of those bad habits. But as Len Zacks and his brother Ben pointed out…I had a lot to learn.

What they taught me is that, indeed, earnings estimate revisions [EER] are the most powerful force impacting stock prices. And nothing captures that power more than the Zacks Rank rating system as proven by its +26% per year annual return.

The timing of this profound investment message could not have been better for me. As the stock market bubble popped in 2000, I started to apply this new investing approach. So even though the market tumbled that year, I actually gained +16% in my personal account.
Was I hooked? Heck yes!!!

Each year since my knowledge and passion for this approach has grown. And there is nothing I like more than to share the wisdom of this investing strategy with others. My goal today is to pass some of that wisdom on to you so you can also enjoy great investment success in the years to come. I’m going to accomplish this goal by listing…

The 3 Top Reasons to Love Earnings Estimate Revisions

1) The Most Fundamentally Sound Metric

There are so many different websites, magazines, books, TV stations, etc. dedicated to investments. The amount of information overload is so unbearable that most investors walk away horribly confused about what is truly important to achieve success. So let me simplify the matter for you so you can push away all that noise and nonsense in the future.

At the end of the day, all stock price movements can be traced back to earnings.

Read that line again so it really sinks in. The reason it’s true is from the basic fact that when you buy shares in a company, you are actually buying a percentage ownership stake in that firm. And if you are the owner of a company, big or small, then the single most important metric to gauge success is how much earnings are generated.

If profits go higher than expected, the share price will rise. Conversely if profits go lower than expected, the share price will come down as well. The stock market has always worked on this premise and it always will. And nothing captures the essence of this notion more than earnings estimate revisions.

2) Applies to Every Type of Investor

Because all stock price movements can be traced back to earnings, it follows that earnings should be at the heart of every investment decision. But that is not the same as saying that earnings are the ONLY thing to consider when selecting a stock. That is just the starting point. From there, each investor can layer on other concepts such as value, growth, charts, etc. to find the stocks that fit their unique approach.

My favorite analogy for this is to say that earnings are to stock investing as flour is to baking. That’s because nearly 100% of baked goods include flour in the recipe. What makes each item unique and delicious is what you add into it (sugar, flavorings, nuts, fruit, butter, etc). Each way works out well, but each starts with flour to make it all come together. So you can apply other factors on top of earnings estimates to make it suit your unique investment tastes as well.

3) It WORKS!

When you put the philosophy and analogies aside, earnings estimate revisions simply work. This is clearly proven by the market-crushing +26% average annual returns of the Zacks Rank since 1988. And these results have been verified by an independent accounting firm, Baker Tilley.

Through up and down markets the Zacks Rank has provided extraordinary, life-changing results for investors. I can certainly testify that is true for me. So I know it can do the same for you too.

Best,

Steve Reitmeister

Steve is the Executive VP in charge of Zacks.com and all of its subscription services. His personal mission is to help investors achieve life-changing investment success by harnessing the power of earnings estimate revisions. Over the years, he has developed a full array of services to help investors do just that. Discover all of these services now to find the ones that best fit your investment style. Learn more about Zacks Ultimate.

Annunci

Nothing to Say Till… – 09/27/2013

…Washington stumbles into some half-baked solution on the Debt Limit. (As you know a fully baked solution is just not in the cards).

Once done then investors will reflect back on GDP growing +2.5%. Plus the jobs picture is improving as was on display Thursday with a third straight jobless claims report near 300K. Certainly this provides ample foreshadowing of a lower unemployment rate ahead. All these good economic tidings will result in higher share prices down the road.

Nothing more to discuss for now.

Best,

Steve Reitmeister (aka Reity…pronounced “Righty”)

Executive Vice President

Zacks Investment Research

3 Ring Circus Hurts Stocks – 09/25/2013

After a brief dip under 1700 on Tuesday morning stocks showed some resolve bouncing all the way to 1707. The good times wouldn’t last as stocks ended in the red for the fourth session in a row. Plus it’s the first close under 1700 in a week.

The sour mood is not about the economic data. Consumer Confidence yesterday was one of the highest readings in years. And the weekly Redbook retail sales report showed healthy +3.6% year over year gains. That is well above the norm the past two years.

Once again the problem lies with Washington’s Three Ring Circus; Continuing Resolution, Debt Limit and Obamacare. The unclear outcome to these issues is putting a damper on stocks with a likely trip to the 50 day moving average on the way. That is only 1% below current le vels and should provide another nice spot to buy top ranked stocks for when the bull market resumes.

Best,

Steve Reitmeister (aka Reity…pronounced “Righty”)

Executive Vice President

Zacks Investment Research

The Problem with Transparency is… – 09/23/2013

The problem with transparency is… transparency.

Bernanke for years took great pride in being the most transparent Fed Chairman in history. Early on there were benefits as enough investors believed him and the markets reacted in orderly fashion. Now he sees the downside of clear communication because his signaling of a forthcoming taper had bond rates nearly double in short order. No small feat.

This happened because bond investors took him at this word. There was no need to wait for him to taper once or twice or seventeen times. They got busy and acted as if the full taper were in already, which was the right move on their part. This was a much faster and stronger move than the Fed ever expected. So now they want to be coy about when the taper wil l actually start.

Sorry Ben. The verdict is in. The taper will come sooner or later and bond rates will stay aloft… as they should be. So enough gamesmanship. Start the taper at the late October meeting and let’s move on with our lives.

Best,

Steve Reitmeister (aka Reity…pronounced “Righty”)

Executive Vice President

Zacks Investment Research

New High Hangover? – 09/20/2013

Investors partied all day and into the night on Wednesday thanks to the No Taper Parade. As they woke up Thursday morning they took a couple aspirins, looked in the mirror and decided they would do it all over again. Meaning that no taper = plenty of reason to rally in the short run.

Very little was given back Thursday as investors digested recent gains and are likely building up the energy to move towards 1750. Recent economic reports add to the luster of this rally such as evident in another very low Jobless Claims report and a Philly Fed report more than double its expected level.

Here is my prediction. I expect stocks to rush up to 1800 this year and then go a bit flat next year. Which is not such a bad thing 5 years into a bull rally. We had a flat year like that in 2011 and stock pickers like us did just fine.

Interestingly, there are parts of the globe where stock markets will push ahead 20%, 30%, even 50% next year. And many of the top stocks there will double and even triple that mark. If you have a good track record chasing down these top opportunities around the globe, then you are all set.

Best,

Steve Reitmeister (aka Reity…pronounced “Righty”)

Executive Vice President

Zacks Investment Research

No Taper: What It Means to Me – 09/19/2013

On the one hand, no taper means more accommodation is on the way. And as they say “Don’t Fight the Fed”. This has proven to be good investment advice historically and most certainly true the past 4 years with this impressive bull market.

On the other hand, no taper means that the economy may not be doing as well as it seems to be. And that certainly has negative connotations.

Reity, what should investors do now?

“Don’t Fight the Fed” is the phrase that pays. Go against it at your own risk. However, if the taper does not come in the next few months I will be scratching my head as to what ills the Fed sees in the economy that we should all be more concerned about.

Meaning the start of the taper should be construed as a vote of confidence in the economy. If that doesn’t come soon, that would not bode well for the stock market. For now, best to play the hand we are dealt… which is bullish.

Yet this bull is 54 months old when the average one lasted 63 months. So it has me pondering just how much more upside there is from here? Or better yet, where can an investor find outperformance these days?

Best,

Steve Reitmeister (aka Reity…pronounced “Righty”)

Executive Vice President

Zacks Investment Research

Ready to Make New Highs? – 09/17/2013

Summer is over in my hometown of Chicago as the temperature has dropped 30 degrees in the past week. And in the financial world, Larry Summers is over as the likely Fed Chair leading to a worldwide market rally (that has to be a blow to one’s ego). So the search for the next Fed Chair continues with Yellen leading the pack and other usual suspects trailing behind.

Beyond that, investors were treated to another solid round of manufacturing data today from the Industrial Production report and Empire State Mfg Survey. This buoyed the market early. Yet as the day progressed the surge up to 1705 faltered ending the session at 1697. Even worse, small caps barely participated in the day’s gains and technology stocks were actually deep in the red.

Likely investors don’t want to celebrate too much until they see what the Fed has on tap at their Wednesday meeting. And likely the start of the QE taper should be on the agenda. I expect little reaction to that event given all the forewarning and market movement that has already taken place. Yet Red Bull laced day traders often surprise me with their faulty split-second reactions to economic events.

Stocks should be ready to leap over 1700 and onto new highs soon enough. Best to align your portfolio for that outcome before it’s too late.

Best,

Steve Reitmeister (aka Reity…pronounced “Righty”)

Executive Vice President

Zacks Investment Research