Whether you're a growth, value, income, or momentum-focused investor, building a successful investment portfolio takes skill, research, and a little bit of luck.
But how do you find the right combination of stocks? Funding your retirement, your kids' college tuition, or your short- and long-term savings goals certainly requires significant returns.
Enter the Zacks Rank.
What is the Zacks Rank?
The Zacks Rank, which is a unique, proprietary stock-rating model, employs earnings estimate revisions, or changes to a company's earnings expectations, that makes building a winning portfolio easier.
There are four main factors behind the Zacks Rank: Agreement, Magnitude, Upside, and Surprise.
Agreement is the extent to which all brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of analysts revising their estimates higher, the better chance the stock will outperform.
Magnitude is the size of the recent change in the consensus estimate for the current and next fiscal years.
Upside is the difference between the most accurate estimate, which is calculated by Zacks, and the consensus estimate.
Surprise is made up of a company's last few quarters' earnings per share surprises; companies with a positive earnings surprise are more likely to beat expectations in the future.
These four factors are assigned a raw score that's recalculated every night, which is then compiled into the ranking system. Stocks are classified into five groups using this data, ranging from "Strong Buy" to "Strong Sell."
The Power of Institutional Investors
The Zacks Rank also allows individual investors, or retail investors, to benefit from the power of institutional investors.
These professionals manage the trillions of dollars invested in hedge funds, mutual funds, and investment banks, and studies have shown that they can and do move the market because of the large amounts of money they invest with. Thus, the market tends to move in the same direction as institutional investors.
In order to determine the fair value of a company and its shares, institutional investors design valuation models that focus on earnings and earnings estimates. Because if you raise earnings estimates, it then creates a higher fair value for a company and its stock price.
Institutional investors will use these changes to help in their decision-making, typically buying stocks with rising estimates and selling those with falling estimates. Higher earnings expectations can translate into a rise in stock price and bigger gains for the investor.
Retail investors who get in at the first sign of upward revisions have a distinct advantage over larger investors since it can often take weeks, if not months, for an institutional investor to build a position. They'll also benefit from the expected institutional buying that could follow.
Not only can the Zacks Rank help you take advantage of trends in earnings estimate revisions, but it can also provide a way to get into stocks that are highly sought after by professionals.
How to Invest with the Zacks Rank
The Zacks Rank is known for transforming investment portfolios. In fact, a portfolio of Zacks Rank #1 (Strong Buy) stocks has beaten the market in 26 of the last 32 years, with an average annual return of +23.9%.
Moreover, stocks with a new #1 (Strong Buy) ranking have some of the biggest profit potential, while those that fell to a #4 (Sell) or #5 (Strong Sell) have some of the worst.
Let's take a look at Clearway Energy (CWEN), which was added to the Zacks Rank #1 list on January 6, 2026. Founded in 2012, Clearway Energy Inc., along with its subsidiaries, owns and operates a diversified portfolio of contracted renewable and conventional generation in the United States. The company’s primary business strategy is to focus on acquisitions and ownership of assets that have predictable and long-term cash flows to increase the cash dividends paid to holders of its Class A and Class C common stock over time, without compromising the ongoing stability of the business. Clearway Energy’s asset portfolio comprises nearly 12.7 gigawatts (GW) of gross capacity in 27 states, including 9.9 gigawatts (GW) of wind, solar, thermal and energy storage and over 2.8 GW of dispatchable power generation providing critical grid reliability services.
For fiscal 2025, two analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $1.11 to $2.21 per share. CWEN boasts an average earnings surprise of 125.5%.
Analysts are expecting earnings to grow 194.7% for the current fiscal year, with revenue forecasted to rise 4.3%.
CWEN has been moving higher over the past four weeks as well, up 1.9% compared to the S&P 500's gain of 1.2%.
Bottom Line
With a #1 (Strong Buy) ranking, positive trend in earnings estimate revisions, and strong market momentum, Clearway Energy should be on investors' shortlist.
If you want even more information on the Zacks Ranks, or one of our many other investing strategies, check out the Zacks Education home page.
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Clearway Energy, Inc. (CWEN): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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