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. A Variety of Ranking Lists Most of these metrics and indicators are not available anywhere else on the Internet. For Example, all our valuation measurements are based on analyst estimates that look forward only about 6 months. That is, we combine data from the last 6 months with analyst projections for the next 6 months to obtain our 1-year baseline. Because analysts are far more accurate when they try to look ahead only 6 months, our 1-year baseline used in computing PE, PEG and other such metrics renders much more reliable, accurate, and useful results. To the best of our knowledge, no other site does this. They either use very unreliable analyst "guesses" for the next 12 months or they use obsolete data from the past 12 months. If you ever find a site that approaches data the way we do, please let us know about it. Otherwise, we will continue to make the claim that we have the only site on the Internet that does this. These measurements pertain to the "Star" and "Diamond" indicators, the % appreciation potential before reaching Fair Value, Fair Value, PE, PEG, and Value Rank. With the exception of the dividend yield and the 20-day low, the other indicators and metrics (including the eight "Flag" indicators) are all original creations of Dr. Winton Felt. None of these are available anywhere else on the Internet because the required algorithms are proprietary. We believe the dividend yield (and maybe the 20-day low) are the only metrics available elsewhere. To review the definitions of these measurements and indicators, or if the descriptions below are not complete enough for you, please click on the tab labeled "The Valuator" in the navigation bar on the left of your screen. Then, scroll down to the "EXPLANATIONS" section. .. STARS & DIAMONDS Up to two stars may precede a stock. The left star represents "Historical Fair Value", and the right star represents "RAM Fair Value." For example, a "*-" (a left star) means the stock has been rising faster than half of the rising stocks. It will also give an estimated 15% or more gross profit if it is bought at the "RECNT PRICE" and sold at its "Historical Fair-Value" ("HIST FV"). Two stars mean the stock has been rising faster than half of the rising stocks, and that both the "RAM Fair Value" and the "Historic Fair Value" are at least 15% higher. A "-*" (a right star) means the stock is among the fastest rising stocks (as above), and that the stock will give an estimated 15% or more gross profit if bought at the "RECNT PRICE" and sold at the ("RAM FV"). If there are no stars, and if the stock's PE ratio ranks among the best (lowest) 20%, "♦" will appear. This means it does not qualify for a star because it is not far enough below either its Historical or its Ram fair value, but it is rising fast enough and its PE is low enough to warrant notice. These indicators are not recommendations. They only highlight stocks that might warrant further attention. . . Percent Rise Needed to Reach "Historical Fair Value" This metric answers the question, "What would the gross profit be if I buy now at the "RECNT PRICE" and sell at the "Historical Fair-Value" ("HIST FV")?" It indicates how much a stock can rise before being fairly priced (according to our "historical fair value" model). Therefore, we look at this as a measurement of realistic appreciation potential. However, even if a stock must rise 30% to reach our estimate of its fair value, there is no guarantee that it will actually rise to that level. Too many things can happen before it does so. For example, an anticipated new drug designed to cure a disease may be discovered to have a nasty and potentially fatal side effect, a CEO may be convicted of fraud, a company may be forced by regulators to restate past earnings, or a highly esteemed corporate leader may die in a plane crash. Any of these events could cause a stock's value to be ignored until the new information is fully digested and the market has adjusted to it. Our normal practice is to post approximately the top (most undervalued) 8.8% of the stocks tracked in The Valuator or about 44 stocks. . List of Low PE Ratio Stocks We believe that a PE ratio based on earnings estimates for the year ending only 6 months from the present is far more accurate than a ratio based on last year or on earnings estimates for 12 months in the future. Why? Analysts tend to be very inaccurate when they project earning for the next 12 months, but they are far more accurate when they estimate earnings over the next 6 months. So, we believe a PE ratio that makes use of that fact is far more relevant than the typical PE ratio. In fact, our own traders have used such PE ratios for their own trading purposes for many years now. We base our PE measurements on a year that combines analyst estimates that look ahead about 6 months with what was actually achieved for about the last 6 months. The market also tends to "look ahead" about 6 months. We usually post approximately 8.8% of the lowest PE stocks tracked in The Valuator or about 44 stocks.
The PEG Ratio in The Valuator is also Superior The PEG ratio is the ratio of the PE to the Earnings Growth Rate. Often great values are overlooked because a stock has a high PE-ratio. We can see this in certain technology stocks. A stock like Dell Computer, Genentech, or Amgen may have a PE of 40 or more and still be a good value if earnings are growing fast enough. Higher-than-average earnings growth rates can support higher-than-average PE-ratios. Most portfolio managers who use this metric, look for PEG-ratios of 1.5 or less. Those who are most strict in their requirements consider a stock to be undervalued only if its PEG-ratio is less than 1.00. Other sites use irrelevant and obsolete data from the past 12 months, or they use analyst "guesses" for 12 months in the future to compute their PEG ratios. We base PEG measurements on a year that looks ahead about 6 months and backwards about 6 months. Analysts do a much better job of estimating earnings when they try to look ahead only 6 months. We usually post approximately 8.8% of the lowest PEG stocks tracked in The Valuator or about 44 stocks.
Dividend Yield We divide the dividends that analysts expect the company to pay over the next 12 months by the "RECNT PRICE" to get the yield on invested money (not counting price appreciation). Many "growth" companies do not pay dividends in order to reinvest in the company, enhancing its growth. Before buying a stock for its yield, be sure to examine closely the stock's chart. High yield may be the result of a sharp decline (if so, avoiding the stock may be wise).
Analyst Projected Growth Rate Analysts estimate stock price ranges 3 to 5 years into the future. We start with a stock’s current price and calculate the average annual appreciation necessary to achieve its average projected price over the average time used in the analyst’s estimate. These figures could be far from accurate because achieving the targeted price range might not be a linear process (average annual rates might not apply). For example, a stock may drift sideways or even decline for 3 years and then surge into the expected price range in the fourth year. So, even if the analyst-estimated price range turns out to be correct, the annualized gain we calculate may turn out to be incorrect for a specific year. Also, analysts have made these guesses based on their research. If they are not able to project a company’s earnings very accurately for one year into the future, it is not likely that they can accurately predict the price of its stock 4 years hence. That’s why they project a probable price range over a span of time. The 3- to 5-year stock appreciation expected by analysts might be best viewed as an indication of current analyst enthusiasm for the prospects of a stock. Converting these estimates to an annual appreciation estimate is intended to simplify conceptualization and comparisons, not to predict a stock's annual appreciation. Nevertheless, the information can be quite useful. If analysts are particularly enthusiastic about a stock, it is likely that the enthusiasm will be evident in the reports they write. Such stocks tend to go up in price.
Stocks Ranked Highly By Our Strength Model "STR RANK" (Strength Rank) measures a stock’s "strength" and gives greater weighting to stocks that show more strength consistency. Our "Strength" model measures a stock’s strength from several perspectives. The model is proprietary but it requires 6 algorithms for the first sort and then 3 more algorithms are applied to the results of the first sort to derive the final scores. The "final scores" are then ranked and each stock is assigned a rank score. Our company traders prefer to purchase what we call a "Runner" only after a pullback to support (when the stock has pulled back to its rising trendline or to a significant moving average) and only after the stock has begun to rebound from that support. The stocks that rank highly may or may not be undervalued according to some fundamental metric. In any event, whatever the cause, these stocks have been exhibiting consistent internal strength (the "market" has shown consistency in favoring these stocks much more than the market as a whole). The importance of the strength of a stock cannot be overestimated in a turbulent or negative market environment. Stocks that have the most "durable strength" (our term for it) are less likely to break down, even in a declining market. We have found that it is easier to avoid stocks prone to "breaking down" shortly after their purchase by focusing on stocks in the early stages of a strong positive trend. To reduce their risk exposure, many traders wait for the stock to respond to the support expected at the trendline or moving average before they buy. Some stocks highly ranked here may have simply gapped to a higher level because of speculation related to a possible takeover by another company. Such stocks may have limited upside potential. Whether or not this is the case for a particular stock can be determined by a visual inspection of its chart. We tend to avoid stocks that have suddenly started trading at a much higher price. We consider stocks that have shown persistent strength to be far more attractive.
Composite Value Rank We use four valuation studies (Hist FV, RAM FV, PEG, and PE) to obtain a composite score and then rank stocks by their composite results. If several value columns are blank (data is lacking or ominous), the score will be low, even though the stock may be a great value according to one or two measurements.
Most Highly Ranked Stocks for "Velocity" For the VEL RANK, we rank the performance of the 20-day moving average of each stock in comparison with the other 499 stocks. We also calculate similar ranking scores as of 20 days ago and 40 days ago. Then we create composite scores for each stock from the results. Finally, the composite scores are ranked. Calculations reflect price activity over three consecutive periods of 20 trading days each (about 3 calendar months). These measurements "recognize" consistency of performance much better than would a single longer moving average. This indicator is best used as a velocity indicator. Do not confuse it with the strength of trend. See "STR RANK" (Strength Rank) above for our strength of trend measurement.
IMPORTANT NOTICE Information in this publication becomes dated very quickly. Our studies revealed that approximately 20% of the consensus estimates of wall-street analysts change each week. Although the vast majority of these changes are minor, there are exceptions. After four or five weeks, the data is in need of updating. Therefore, an issue of The Valuator should not be used longer than a month after you receive it.
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