How Zen Ratings Can Help You Beat The Market
The only reason to use a ratings system to select stocks is that you firmly believe it leads to superior performance.
Gladly the Zen Ratings offers ample proof of that given over 20 years of outstanding results:
That's right. Our A rated (Strong Buy) stocks have produced an average annual return of +32.52% since 2003.
This return implies that the Zen Ratings helps you outperform the market by more than 3 to 1.
Unfortunately that does not provide the full measure of how truly beneficial this performance is to your financial well being. Especially how that advantage compounds over time as you will see in the chart below:
That's correct.
A modest $10,000 investment in our A rated stocks back at the beginning of 2003 would now be worth over $6,000,000 today.
That's because when you beat the market by 3 to 1 on average each year, it also means your money doubles 3 times more often. That is what leads to this exponentially better lifetime return.
The root cause of this outperformance comes from our proprietary model analyzing 115 different factors for every stock. Everything from growth to value to momentum to exclusive AI factors.
A thorough 360 degree review of a stocks upside potential to consistently find the best stocks to put into your portfolio.
If you are interested in a more consistent and reliable way to pick profitable stocks, then read on below where we will cover:
How to Use Zen Ratings
Gladly our computers do most of the heavy lifting for you.
That's because every market day we analyze over 4,600 stocks by 115 unique factors to determine those with the most upside potential. This results in a percentile rating for each stock which translates to a letter grade and recommendation as shared below:
| Zen Rating | Recommendation | Annualized Return | Percentiles |
|---|---|---|---|
| A | Strong Buy | +32.52% | Top 5% |
| B | Buy | +19.88% | Next 15% |
| C | Hold | +7.53% | Mid 60% |
| D | Sell | -4.50% | Next 15% |
| F | Strong Sell | -8.02% | Bottom 5% |
Plain and simple, you want as many stocks with A and B overall Zen Ratings in your portfolio given their high likelihood of superior performance.
Just as important is isolating sell rated D & F stocks to remove them from your portfolio ASAP before they do any serious damage.
Here is the problem.
On any given day the top 20% of stocks will be A or B rated. That's over 900 attractive stocks to choose from which can be an overwhelming task.
And let's be honest…not all 900 of those stocks will be equally appealing to each investor.
That's because each of you has a different way of viewing stocks.
Some of you are more aggressive…and some more conservative.
Some prefer growth stocks…or value…or momentum or a combination of these factors.
Gladly we have the perfect solution!
We devised 7 additional Component Grades for every stock to quickly help you narrow down to the stocks that are the perfect fits for you.
Here is an example of how these additional ratings appear on our quote pages:
Zen Rating Component Grades
The key thing to remember is that these component grades are ONLY to be used after first reviewing the overall Zen Rating for the stock.
Only continue to research stocks rated A or B overall. The poor performance of the lower rated stocks says they are not worthy of further consideration.
Next dig into the 7 Component Grades (click on the arrow to learn more about the unique aspects of each grade):
- Estimated earnings yield: Compares earnings expectations to current stock price.
- Earnings Before Interest and Taxes/Enterprise Value: Assesses operating profits relative to total business value.
- Cash flow yield: Evaluates the relationship between a company's cash flow and its stock price.
- Free cash flow to price: Assesses value relative to a company's ability to generate free cash flow.
- Price-to-earnings growth (PEG) ratio: Balances price-to-earnings with growth expectations.
- Sales acceleration (short-term): Tracks recent sales growth to assess business momentum.
- EPS growth (next 12 months): Projected earnings growth over the coming year.
- Profit margin improvement: Analyzes potential for improved profitability.
- Free cash flow momentum: Assesses cash flow growth generated after capital expenditures.
- Operating income growth: Trends in operating profitability over recent periods.
- Sub-industry momentum: Compares stock performance relative to its sub-sector peers.
- Share turnover: Tracks how frequently shares are traded, reflecting investor interest.
- Volume-weighted momentum: Analyzes momentum with the added weight of trade volume.
- Risk-adjusted momentum: Adjusts momentum metrics based on the stock's risk profile.
- Price standard deviation: Measures the volatility of price movements over time.
- Earnings surprises: Captures how actual earnings diverge from expectations.
- Short interest: Tracks the percentage of shares being shorted.
- Upward and downward earnings revisions: Indicates how analysts' expectations have shifted recently.
- Insider action: Analyzes buying or selling activity by company insiders, which can signal confidence or concern.
- Changes in recommendations: Measures how analysts' buy, hold, or sell recommendations evolve over time.
- Stock Price Stability: Measures the volatility of a company's stock price over time, reflecting how consistently it performs in the market compared to peers. Low volatility suggests greater resilience to market fluctuations.
- Receivables Standard Deviation: Evaluates the consistency of cash collections, ensuring that the company maintains stable and predictable revenue inflows.
- Earnings Estimate Standard Deviation: Assesses fluctuations in analyst predictions, providing insight into the predictability of a company's future earnings.
- Free cash flow to return on assets (ROA): Evaluates profitability and efficiency in asset utilization.
- Gross profit to assets: Measures how efficiently a company is generating profit relative to its asset base.
- Long-term debt to assets: Assesses leverage and the company's debt burden relative to its assets.
- Cost reduction: Tracks operational efficiency improvements through cost savings.
- Return on equity (ROE): Measures a company's profitability in relation to shareholders' equity.
Every investor will combine these 7 ratings in a unique way to suit their individual preferences.
Just remember that each additional A or B component grade will increase your odds of outperformance. So be sure to stack as many of them in your favor as possible.
Where to Find the Zen Ratings
We have just implemented phase 1 of our Zen Ratings rollout on WallStreetZen.com.
Right now you can find the overall Zen Rating, and the correlated 7 Component Grades, on the quote page for over 4,600 stocks.
Just go to the quote box at the top of the site any time to get the ratings for any stock you like.
This is a free feature for all members of WallStreetZen.com to immediately start enjoying better investment results.
In phase 2, we will roll out many additional features to help you better find and track stocks with the Zen Ratings. These enhancements are slated for the first quarter of 2025.
In the meantime, those who want to get the most out of the Zen Ratings may want to discover our Zen Investor newsletter.
Steve Reitmeister is the Editor of the service. For the majority of his investment career he has focused on the benefit of quant ratings systems to select the most profitable stocks.
The insights Steve has gleaned from the past 4 decades was crucial in the creation of the Zen Ratings. And thus no one is more qualified in using this rating system to select stocks with the most upside potential.
To learn more about Steve's unique application of the Zen Ratings to hand select stocks for his Zen Investor portfolio, then click below:
How Are the Zen Ratings Created?
We engaged with a leading data science firm in the investment field to create the Zen Ratings.
The goal was simple…to find consistent outperformance in the stock market.
The +32.52% average annual return for our A rated stocks more than proves the "outperformance" part of the statement.
The fact that it has beaten the S&P 500 for 21 of the last 22 years proves the also vital "consistent" part of the mission.
That one year it underperformed was in 2008 during the financial crisis when the A rated stocks did just 2% worse than the overall market.
Gladly that one blemish was more than made up for during the 2022 bear market when A rated stocks gained +5.48% even as the rest of the market was painted a bright shade of red.
The data science firm has been creating all kinds of stock rating systems and strategies over the past 20 years.
It is fair to say that the benefit of all those 20 years of experience was packed into the Zen Ratings.
That's because there are more than 2,000 different factors one could use to analyze stocks.
Years of rigorous testing has narrowed that search to only 115 individual factors that are beneficial in picking more profitable stocks.
Meaning that using just 1 of these 115 factors would help you enjoy better stock performance.
Increasing to 2 or 3 factors helps improve results even more.
Now consider the advantage that comes from stacking all 115 factors together in the optimal way.
That is precisely what leads to the consistent outperformance of the Zen Ratings model that you can apply to your own portfolio.
As shared earlier, these 115 factors are broken down into 7 different component categories. (# of factors for each component).
From the above you easily appreciate that this is an incredibly well rounded ratings system taking into account the attractiveness of a company from every logical angle.
You will note that we have discussed 115 different factors in the Zen Ratings. Yet if you add up all the ones in the chart above you will discover only 112.
That's because the model has 3 bonus factors for the Size of a stock. That is because over time smaller stocks have generated higher performance. So these 3 factors help skew the model slightly towards small cap stocks.
Now let's drill down into the most exciting part…that being the Artificial Intelligence (AI) factor.
What sets our AI factor apart is how it combines multiple factors (such as earnings, cash flow, price movement and industry trends) into a singular, actionable insight.
The Zen Ratings leverages cutting-edge machine learning technology to enhance its rating system, using a Neural Network model trained on over 20 years of historical fundamental and technical data.
This model analyzes patterns and relationships in vast amounts of data that would be impossible for humans to detect, offering a more comprehensive and nuanced view of stock performance.
The AI model incorporates advanced cross-validation techniques, ensuring the system isn't just optimized for past performance but is robust enough to adapt to future market conditions.
Cross-validation helps avoid overfitting, which means the AI isn't just learning how to excel in specific historical periods—it's learning to generalize across different types of market environments.
Best of all, we continue to update the model on the most recent market data. Each time we do that, the AI gets smarter about how to find alpha in today's stock market.
All in all, the Zen Ratings is one of the most complete and consistently profitable stock selection systems available to individual investors today.
We hope you make a habit of using it to greatly improve your financial future.
What to do Next?
Let's go back to the beginning.
No matter how truthful this is…
No matter how life changing this would be…
No matter how easy it would be to implement…
Far too many of you will not use the Zen Ratings system. That's because making change is difficult.
So you will keep slugging away with your current investment approach leading to the same sub-par results.
This fits in with the classic definition of insanity "doing the same thing over and over again hoping for a different result".
The only way to enjoy the consistent outperformance of the Zen Rating system is to start using it for the benefit of your portfolio.
So please make a pledge yourself to start doing that now.
It really can be as easy as these 3 simple steps:
- Sell off the D & F rated stocks that will harm your future results.
- Buy more A & B rated stocks that have the most attractive upside potential.
- Come back to the website on a regular basis to monitor the ratings over time. Sell when the rating drops to C or below. And rotate that money back to the best looking A & B rated stocks.
However it is just as important that you remain realistic with your expectations.
This is not a silver bullet or box of magic.
There will be days, week or even months where the stocks you select do poorly. This is especially true if the overall market is weak as that tide raises and lowers all boats.
But if you stay true to the process, and continue to focus on the highest rated stocks, you will enjoy superior results.
Again, only you can take those first steps. Then we are here to support you every other step of the way.
Just reach out to our team with any questions to make the most use of Zen Ratings.
For those who want a bit more guidance on selecting the best stocks, you may want to consider membership to our Zen Investor newsletter.
The insights Steve has gleaned from the past 4 decades was crucial in the creation of the Zen Ratings. And thus no one is more qualified in using this rating system to select stocks with the most upside potential.
To learn more about Steve's unique application of the Zen Ratings to hand select stocks for his Zen Investor portfolio, then click below:
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