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.īecause it can take a long time for an institutional investor to build a position - sometimes weeks, if not months - retail investors who get in at the first sign of upward revisions have a distinct advantage over these larger investors, and can benefit from the expected institutional buying that will follow. If earnings estimates are raised, it puts a higher value on a company. 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. Because of this, the market tends to move in the same direction as institutional investors. Studies have shown that these investors can and do move the market due to the large amounts of money they invest with. Institutional investors are the professionals who manage the trillions of dollars invested in mutual funds, investment banks, and hedge funds. The Zacks Rank also allows individual investors, or retail investors, to benefit from the power of institutional investors. Using this data, stocks are classified into five groups, ranging from "Strong Buy" to "Strong Sell." 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.Įach one of these factors is given a raw score that's recalculated every night, and then compiled into the Zacks Rank.
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