It doesn't matter if 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 what's the best way to find the right combination of stocks? Because funding things like your retirement, your kids' college tuition, or your short- and long-term savings goals will definitely require 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.
Institutional investors are the professionals who manage the trillions of dollars invested in mutual funds, investment banks, and hedge funds. Studies have shown that these investors can and do move the market due to the large amounts of money they invest with. Because of this, the market tends to move in the same direction as institutional investors.
These investors are known for designing valuation models that focus on earnings and earnings expectations in order to figure out the fair value of a company and its shares. If earnings estimates are raised, it puts a higher value on a company.
Institutional investors then act on these changes in earnings estimates, typically buying stocks with rising estimates and selling those with falling estimates; an increase in earnings estimates can translate into higher stock prices 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 +25.41%.
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
Sprouts Farmers (SFM)
, which was added to the Zacks Rank #1 list on April 12, 2025.
Sprouts Farmers Market, Inc., which operates in a highly fragmented grocery store industry, has a unique model that features fresh produce, foods section, and a vitamin department focused on overall wellness. Moreover, the company has been diversifying its offerings to meet changing preferences of consumers, who are looking for more health and wellness products. These products are generally plant-based, gluten-free, keto-friendly, and grass-fed. The company has been focusing on natural and organic food, which is one of the fastest growing segments in the industry.
For fiscal 2025, seven analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.43 to $4.66 per share. SFM boasts an average earnings surprise of 15.1%.
Earnings are forecasted to see growth of 24.3% for the current fiscal year, and sales are expected to increase 11.9%.
Additionally, SFM has climbed higher over the past four weeks, gaining 12.5%. The S&P 500 is down 5.6% in comparison.
Bottom Line
With a #1 (Strong Buy) ranking, positive trend in earnings estimate revisions, and strong market momentum, Sprouts Farmers 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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Sprouts Farmers Market, Inc. (SFM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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