Are You a Momentum Investor? This 1 Stock Could Be the Perfect Pick

Whether you're just starting out or have years of experience, one of the most common ambitions for investors is to navigate the stock market skillfully and invest with assurance. Fortunately, there are tools available to help you achieve this.

Among these tools is a popular research service, which provides various resources including daily updates on stock rankings and industry standings, comprehensive equity research reports, and stock screening features.

One key resource offered is the Zacks Style Scores.

What are the Zacks Style Scores?

The Zacks Style Scores is an innovative system designed to evaluate stocks based on three well-known investment styles, serving as a helpful complement to the Zacks Rank. This synergy aids investors in selecting stocks with the highest potential to surpass market performance within a 30-day frame.

Stocks receive ratings from A to F based on their performance in value, growth, and momentum. Here, an A rating indicates superior potential compared to a B, while a B is more favorable than a C, and so forth. Higher scores suggest a higher likelihood of outperformance.

The Style Scores are categorized into four distinct types:

Value Score

This score is geared towards investors seeking to identify stocks that are undervalued, using several financial ratios such as P/E ratio, PEG, and price-to-sales ratio, among others, to highlight stocks that are priced attractively.

Growth Score

Growth investors aim to identify stocks that exhibit robust future prospects and financial health. The Growth Style Score evaluates aspects like earnings forecasts and historical sales to find stocks poised for sustainable growth.

Momentum Score

For momentum investors, recognizing price trends in a stock can lead to substantial gains. The Momentum Style Score identifies optimal times to enter a position by analyzing recent price changes and shifts in earnings estimates.

VGM Score

If you prefer a blend of investment strategies, the VGM Score merges all the Style Scores into one, providing a holistic indicator that accounts for value, growth, and momentum.

How Style Scores Work with the Zacks Rank

The Zacks Rank is a proprietary model that assesses stocks by monitoring revisions in earnings estimates. This approach has proven highly effective, as stocks with a #1 (Strong Buy) rank have delivered an average annual return of +25.41% since 1988, outpacing the S&P 500 significantly. However, with more than 800 stocks rated daily, it may be challenging to pinpoint which ones to invest in.

This is where the Style Scores come into play.

To maximize investment returns, focus on stocks that not only possess a Zacks Rank of #1 or #2 but also a Style Score of A or B. For stocks with a #3 (Hold) ranking, ensure they also hold scores of A or B for optimal upside potential.

Paying attention to the direction of earnings estimate revisions is crucial, as Style Scores are designed to be used alongside the Zacks Rank.

In contrast, a stock bearing a #4 (Sell) or #5 (Strong Sell) rating is likely to experience price decline, even if it displays high Style Scores. Therefore, increasing your portfolio's holdings with stocks ranked #1 or #2, along with A or B Style Scores, is suggestive of better performance.

Stock to Watch: Lyft (LYFT)

Based in San Francisco, California, Lyft made its market debut on the Nasdaq in March 2019 at an initial public offering (IPO) price of $72 per share. The company sold numerous shares during its IPO in order to fund its operations.

Currently, Lyft holds a Zacks Rank of #2 (Buy), accompanied by an overall VGM Score of A.

For those interested in momentum investing, Lyft is worth considering, as it holds a Momentum Style Score of A and its shares have surged by 11.4% in the past four weeks.

In the past two months, analysts have raised their earnings estimates for Lyft for fiscal 2024, indicating positive momentum. The consensus estimate for earnings has increased by $0.05 to $0.79 per share, with a remarkable earnings surprise average of 78.8%.

With a robust Zacks Rank and strong scores in both Momentum and VGM categories, Lyft appears to be an attractive option for investors looking to capitalize on market trends.

investing, stocks, momentum