The idea of ‘value investing’ is no rocket science. The idea is to invest in stocks that you believe are undervalued– that is, those with their market value less than their ‘fundamental value’ or ‘intrinsic value’ – based upon your investment horizon. However, determining a stock’s intrinsic value is no easy task. An investor needs to use the right tools and metrics to select such stocks. Moreover, currently, a jittery oil market, an ambiguous interest rate policy of the Fed and mixed U.S. economic data is making it more difficult to predict the fundamental value of any security at the moment.
But, even after you have identified the stocks, should you invest in all of them? After all, they are expected to add value over your investment period. The answer is an obvious ‘No’. An investor should not concentrate his/her selection in a particular sector or an industry and must diversify his holdings across various sectors. This is exactly where market jargons like ‘being overweight’ or ‘underweight’ comes into play.
While the relative importance of different sectors is generally left to the investors to decide, identifying attractive industries remains a challenging job. This is where our proven Zacks Rank system can help an investor by not only identifying the attractive stocks but also zooming in on those industries which we believe will create value for your portfolio, going ahead.
Our Zacks Rank system is a timeliness indicator, meaning that value investors can use it to identify precisely when a company’s prospects are beginning to improve. Stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) are the ones to look out for. Moreover, stocks rated ‘A’ or ‘B’ by our Value Score System further helps winnow the wheat from the chaff by identifying the stocks that are most likely to outperform based on their valuation measures. When combined with the Zacks Rank, they create a powerful combination for identifying value stocks. Also, by leveraging the power of earnings estimate revisions in the recent past, the Zacks Industry Rank highlights the most upbeat industries at the moment.
