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The Valuator: Your Guide To Disciplined Investing & Trading

The Valuator: Your Guide To Disciplined Investing & Trading


Watch-list Candidates & Values
Fundamental & Technical Measurements

The Valuator is a monthly publication that provides numerous measurements of stock behavior and value. These include the "Star" and "Diamond" indicators, the Eight "Flag" indicators that show where a stock is in its price cycle (all stocks cycle), the "Trends" indicator that maps the direction of 3 consecutive 20-day trends, the "Direction ± (%)" indicator, the "20-Day Low," the distance in % before a stock reaches Fair Value, Fair Value, RAM Fair Value (interest rate adjusted "Fair Value"), PE, PEG, Dividend Yield, estimated Growth rate, Strength Rank, Value Rank (based on a composite of 4 valuation measurements), and Velocity Rank. The Valuator is spreadsheet sortable and it gives follow-up information every month.

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 (analysts are far more accurate when they try to look ahead only 6 months). The market also "looks ahead" about 6 months. 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. 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 algorithms necessary to generate the data are proprietary. The dividend yield and the 20-day low are the only metrics available elsewhere.


"Fair Value", PE, and PEG

People buy high and sell low because at any given time they have no rationale for judging where it is relative to its "fair value." The price of each stock swings up and down between being overpriced or "overvalued" ("high") and under-priced or undervalued ("low") relative to ANY measure of the underlying value (the "fair value") of the stock. The market’s concept of "fair value" for a stock is not constant. "Fair value" is what the market thinks it is. Like it or not, "fair value" is tied to market sentiment. People use various measurements and ratios to express "fair value" and that gives us a sense that fair value is something that can be quantified. However, "fair value" always has a context that in some way shapes the meaning of "fair value."

For example, one year a company may generate earnings of $2 a share. During that year, the price of the stock ranges between $30 and $40. Another year the stock generates earnings of $4 a share. During that year, the stock’s price ranges between $25 and $30. If you have watched the market for any length of time, you will know that this kind of thing happens frequently. Why isn’t there a better connection between "fair value" and earnings? The same thing occurs if your "fair value" measurement is based on book value, PE ratios, price-per-sales ratios, PEG ratios, dividends, earnings yield, or whatever. "Fair value" is what the market says it is. It is always changing with the successes and failures of the company (or sector) and in accordance with how people judge those successes and failures. New healthcare legislation is passed and the value that the market places on healthcare stocks changes. "Fair value" is a very helpful concept, but it is always modified by context. The fair value of $2 in earnings generated by a tobacco company was different in 1950 from what it is now.

Consider the PE and PEG ratios. PE is price per share relative to earnings per share. PEG is the PE ratio relative to the earnings growth rate. Some investors compare the PE or PEG ratio to that of the market as a whole to determine whether the stock is undervalued or overvalued. Others compare the current PE or PEG of a stock with the historic PE or PEG of the stock to determine whether that stock is above or below its fair value. However, the real problem in using such metrics as the PE and PEG is not the way they are used but the way they are measured. Most of the time, the PE ratio is "the current price" of a stock divided by "the earnings for the previous year." A similar approach is used for the PEG ratio. In our view, a PE or PEG measurement based on last year’s results is meaningless. What possible relationship can there be between a PE or PEG based on last year and what is happening now? Sometimes you will see metrics based on earnings estimates for the coming year. The problem with that is that stock analysts are notoriously inaccurate in making such predictions. We think a PE or PEG ratio based on what a stock analyst thinks will happen next year is almost useless. The only thing that makes those PE and PEG ratios useful is that people tend to believe in them. Think about it.

A study of more than 67,000 estimates by David Dreman determined that 45.3% of the estimates missed actual earnings by more than 15%. Therefore, the PE and PEG ratios most frequently used are not based on reliably accurate data. If the earnings estimate is off by 15%, both the PE and the PEG will be off by 15% as well. However, that 15% variance works both ways. Suppose one stock analyst estimates 15% more than the actual figure turns out to be and another, looking at the same stock, estimates 15% less. The PE and PEG ratios you use may vary by 30% from the PE and PEG ratios used by someone else. You may be reaching entirely different conclusions about the same stock depending on which analyst you are using. We believe the PE and PEG are useful measurements, but not the way they are usually calculated. We believe that a PE or PEG based on earnings estimates for the year ending only 6 months from the present would be far more useful. Analysts are far more accurate when they estimate earnings over the next 6 months. So, a PE or PEG ratio that makes use of that fact would be far more relevant. In fact, our own traders have used such PE and PEG ratios for their own trading purposes for many years now. In general, we base our own PE and PEG measurements on a year that looks ahead about 6 months and backwards about 6 months. The market tends to "look ahead" about 6 months. Why shouldn’t we use PE and PEG ratios that also look ahead about 6 months? However, we don’t limit our use of this approach to our measurements of PE and PEG ratios. We use the same approach for all our valuation measurements. We originally created The Valuator for our own purposes and, therefore, The Valuator computes the PE and PEG in this way.


Strategies & Systems Need: Alerts Setups Flags Valuations

You cannot monitor all stocks. Therefore you must focus. Develop strategies, systems, and disciplines that will enable you to find "setup" situations. Develop a discipline for finding stocks that are sound fundamentally and that are attractive and timely technically. You should have access to a heavy-duty real strength screener, not just the RSI. You should have PEG, PE, and other valuation measurements that are not outdated because they are based on last year’s results or that are pie-in-the-sky because they are based on what analysts think might happen over the next year.

The Valuator is a resource and research tool for traders and investors that is specifically designed to enable its readers to develop a disciplined approach to investing. It is also intended to be useful in the implementation of that discipline. Implementation of a disciplined approach to investing requires regular follow-up information on stocks that have been selected for inclusion in a portfolio. That is why a relatively large and stable list of stocks is monitored. The Valuator is a monthly publication that tracks approximately 500 stocks on a regular basis (the typical market newsletter covers only a handful of stocks with almost no follow-up reporting).

The Valuator is different not only in the quantity and quality of data it provides, but also in the fact that its data can easily be sorted and sifted by users. You may think that you can do the same thing with a stock screener. That is impossible. Much of the data we provide is unavailable anyhere else. How can you screen for it if it's not there? Take the time to read the "Explanations" section below. You will see what we mean. Text, charts, and tables for The Valuator are all located in the "Subscribers Only" section of this Web site. You do not have to have Microsoft's Excel program to access the data portion. To test your systems ability to open, print, and sort a spreadsheet, click on spreadsheet. This should open a portion of an old Valuator. Once you open the spreadsheet, try printing it and then copy it to your own spreadsheet program. You should be able to "massage" or sort the data in your own program. If the sample you see is larger than your screen, press the "Ctrl" key and the "-" key at the same time to reduce the size of the spreasheet. If you have trouble pasting the heading into your own spreadsheet, it's probably because of the merged cells in the heading. Try copying and pasting only the rows of data below the headings. If you want the headings, you can add those to your spreadsheet later. Then, you could use the same headings or subsequent issues. Sorting and sifting should make it easy to find the stocks that best satisfy the particular requirements of your discipline. You also have our permission to print your own hard copy (for your own personal use only) if that is your desire. If you do not know how to sort in your spreadsheet, perhaps the video will help. We believe a subscription provides much more real information for the price, than you could get by subscribing to perhaps any other "market letter" on the planet.


Basic Facts You Should Know

People buy high and sell low because a stock is constantly swinging through its cycles and at any given time they have no rationale for judging where it is relative to its "fair value." The price of each stock swings up and down between being overpriced ("high") and under-priced ("low") relative to ANY measure of the underlying value (the "fair value") of the stock. The time it takes from trough to peak averages about 6 months, though individual stocks can vary greatly from the average. Even the "fair value" of a stock is not constant. It is always changing with the successes and failures of the company and in accordance with how people judge those successes and failures.

We get ideas through the media that may have been great when first conceived, but by the time they get to us, it may be too late for an individual with limited resources to take an initial position. For example, the money manager touting a stock on television may have been buying his "best pick" for several months (buying most of it when the stock was fifteen dollars cheaper), or the stock idea in Forbes may have originated weeks before publication.

Discovering "fair value" is a complex matter. Stock prices have little to do with the current "intrinsic" value of a company (the total net value of a company’s assets divided by the number of its shares). The Valuator provides continuously updated data on more than one approach to judging the "value" of a stock. Each approach can give valuable insight to the investor. Together, they can help an investor formulate a rationale for judging current "fair value," for placing the current price of a stock in a valuation context, and for the timing of purchases and sales.

One "fair-value" computation involves the application of statistical models to historical and recent data to derive statistical inferences. These models are applied to "blue-chip" or widely followed stocks because more established companies tend to generate more reliable numbers (very important in creating a reliable discipline). Institutional investment in a stock tends to make a stock’s behavior more predictable because these investors tend to be more disciplined. The range between low and high often exceeds 50%, even with high-quality blue-chip stocks.

We use statistical procedures to define the relationship that has existed between a company's financial data and the corresponding price action of its stock during the past several years. This tells us, for example, how the market has been valuing the earnings of the company over the last several years. The earnings of different companies are valued differently (even if they are in the same industry). The market does not value the earnings of a soap maker the same way that it values similar earnings generated by a chip maker. Thus, we customize a unique valuation model for each stock that we track. Then recent analyst conclusions regarding the financial prospects of these companies are "plugged" into the individualized models and interpreted in the context of those relationships. In this way, we compute the probable high and low price for each stock (see "EST HIST LO" and "EST HIST HI" under STATISTICS for averages) as well as its "HIST FV" (i.e., Historical "Fair-Value"). The results are used in the "FLAG" and "HIST FV" columns in the tables.

What the market considers "fair value" for a stock can change even if a company’s earnings and other financial data do not. That is because such measurements necessarily reflect market sentiment regarding various companies and sectors. Because market "sentiment" can change, no practical method of estimating value is exempt from deviant measurements. For example, If a sudden change in market psychology should cause the market or a stock to "crash," then these historical relationships may cause some of our "HIST FV" determinations to be high relative to the new realities and psychology of the market. Thus, caution is advised in the use of any valuation numbers.

If a crash occurs and the "HIST FV" of a stock is $250 a share but the stock is currently $6, we do not think it is wise or realistic to buy the stock with the expectation that it will go to its historical "fair-value" of $250. The stock is worth what the market says it’s worth, and that can change even if the company hasn’t changed. Valuation "dislocations" tend to correct themselves over time.

We also compute the "fair value" for individual stocks by adjusting their projected earnings yield (projected earnings per share ÷ price per share) in accordance with the interest rate environment (see the RAM explanations). The RAM (Rate Adjusted Model) provides objective measurements that are independent of historical stock price vs. earnings patterns. Compare the valuations of the two models. They each tell a story. The historical "Fair-Value" ("HIST FV" in the tables) sees the uniqueness of each company and its stock, and it factors in even the excitement and glamour associated with a company or industry. It differentiates between a biotech company and a candle maker. Unlike the "HIST FV," the RAM treats all stocks alike. To the RAM, a biotech company looks just like a candle maker. Earnings and interest rates are the only factors "visible" to the RAM.

In the "STATISTICS" section, we use these RAM measurements for individual stocks to create composite valuations for the entire universe of stocks followed in The Valuator and considered as a whole. This is similar to the well-known "Fed Model" but without the weighting biases of that model and without being limited to only stocks in the S&P 500. The RAM treats all stocks alike, regardless of their market capitalization. More information will be provided on this later.

The risk of decline increases as a stock rises, especially if it rises above its "Fair-Value." As the premium above fair-value increases, the more sudden and severe the subsequent decline is likely to be. Thus, it makes sense to plan your purchases so that you can be satisfied with a sale at or below the fair value price you are using. For example, the "% TO FV" column shows the gross profit potential of a stock if it is bought at the "RECNT PRICE" and sold at the "HIST FV" price (there is no assurance that it will actually reach the "HIST FV" price). Never use the "HIST FV" or any other measure of "fair value" as the sole factor in deciding whether or not to buy a stock. We also advise that you use Valuator data in the context of other research (such as that from Moody’s, Standard and Poor’s, and Value Line).


How Can The Valuator Be Used?

It was designed to enable the user to create his or her own strategies and to assist in the disciplined implementation of those strategies. It is intended to facilitate stock screening. The 500 stocks covered underwent some vetting before their inclusion in The Valuator (more than 90% are members of the S&P large-cap, mid-cap, or small-cap index). There is not enough space here to describe all the ways it can be used. As a screening tool, The Valuator can help you close in on the final picks for your watch list. We will offer just a few ideas here. Hopefully, that will open your thinking to many other ways of using it.
    Any stock with a star is not only considerably undervalued by some measurement, but it is also rising faster than most rising stocks (undervalued or not). A person could monitor these stocks until one is offering a good entry point. That is, it has either pulled back to a rising trendline or moving average and has "bounced" off that trendline or average because of the buying support that exists there. The investor could then sell when a volatility-adjusted stop-loss is triggered, when the stock has declined a certain percentage below the purchase price, when it reaches the "fair value" figure that generated the star in the first place, or through the implementation of some other sell discipline.
    Median and average PEs are given in the STATISTICS section. Divide the median by 1.15. Any stock with a PE below the result you get when you divide the median by 1.15 has to rise 15% or more to reach the median PE. The same reasoning applies to the average PE. A person could simply divide the median or average PE by 1.15 to determine what PE level is attractive, then scan down the PE column for stocks with the required PE. When one is found, simply check its Strength Rank or Velocity Rank to see if it is advancing strongly enough. You could set your requirement at the 75th percentile or at any level of your choice. Another approach is to simply paste all the data into your spreadsheet and sort the whole sheet by the PE column. Then you could print a list of 50 or 100 stocks with the lowest PE ratio. (Remember that our PE ratio is based on approximately a 6-month look ahead and a 6-month look back. This is far more realistic than using guesses about earnings for the next 12 months or using outdated earnings data from last year.). When you develop your list of candidates, all that remains is waiting for a good entry point.
    A few years ago, the "Dogs of the Dow" system received notoriety because of the great returns it achieved over many years (about 18% average per year for 15 years). The strategy involved selecting the 10 Dow stocks out of 30 that have the greatest dividend yield. They are bought and held for one year. At the end of the year, the Dow stocks are ranked again according to their dividend yield. Adjustments are then made to the portfolio to align it with the new ranking. That is, the stocks that no longer offered enough of a dividend yield to place them in the top ten ranked stocks in percentage yield were sold and those that replaced them in the top ten ranking were bought. Again, adjustments are made only once a year. The thinking was that these companies were healthy enough to pay a dividend and that they were probably underpriced because the yield goes up when the price goes down. They were also considered relatively safe because the Dow is made up of some of the biggest blue chip companies in the world. Therefore, the fact that prices are low for the high yielding stocks was probably not due to a pending bankruptcy. The Valuator covers all the stocks in the Dow plus many other "blue chips." The printed version of The Valuator lists the 40 stocks out of the 500 or so covered that have the greatest dividend yield. That's approximately the top 8% of the stocks covered. Using the online version of The Valuator, the 44 top ranked stocks are listed but a larger list can be created easily by selecting all the data cells of the spreadsheet (except the headers) and sorting it by the dividend yield column. The top 50 stocks would be in the top 10 percent out of about 500. In comparison, the top 10 stocks in the Dow are in the top 33 percent of 30. Selecting the top 50 out of 500 is much more selective than taking the top 10 out of 30. Therefore all of the 50 stocks on your top 50 list will have undergone a much more rigorous selection process than any of the 10 stocks selected from the Dow in the "Dogs of the Dow" system. Therefore, a potentially more profitable discipline would be to select stocks from among the top 20 on this list and sell any that fall out of the top 40 or 50 listing. There are many variations possible. For example, adjustments could be made monthly, quarterly, or yearly. Stocks could be selected from the top 10, top 25, or top 50. You might create a "watch list" of such stocks and wait for a good entry point. You could require that a stock be in the Highest Dividend Yields ranking list and also among the highest ranked in the Strength Rank column or the Velocity Rank column at the same time. The stocks could be sold when their ranking falls to a certain level, when a volatility-adjusted stop-loss is triggered, when the 50-day average stops rising (it has leveled off) and the stock falls below it, or because some other condition or rule has generated a sell signal.
    You might simply stay with stocks that appear in the top 40 or so in the "Strength" column. Stocks could be selected from among the top 20, top 15, or top 10. They could be sold when they fall below a certain point on the ranking list, when they fall through a stop-loss, and so on. Stocks of exceptional strength often rise above "fair value." A 20% premium to fair value is not particularly rare. Thus, stocks could also be sold when they reach fair value, or exceed fair value by a certain amount.
    You could select stocks from the "Est % Gro" list. Simply rank them and select from the top 50. Analysts are the most enthusiastic about these stocks. There is probably some reason behind this excitement. See if any of these also rank high on the "Strength" or "Velocity" list. Look at their charts. Is their 50-day moving average rising at a decent rate and is the stock above this average? Create your "watch list" and wait for a good entry point.
    There are many other disciplines that can be created from information in The Valuator. You may wish to screen stocks by looking for various combinations of factors such as stocks that are "LO" (see the "FLAG" column) have risen in their 20-day average price at least 2% (see "DIR ±%", and that offer at least a 25% profit in the "% TO H.FV" column.
    The "FLAG" column estimates where a stock is as it cycles between being (historically) overpriced and under-priced. All stocks cycle. That is, a stock’s price might swing between $30 and $70 while its "fair value" is $50. This indicator shows, in the context of historical market valuations, whether a stock is high (at its probable high or higher) and falling ("HF"), overpriced (above "fair value" but not yet at its probable high) and falling ("OF"), under-priced and falling ("UF"), low and falling ("LF"), low and rising ("LR"), under-priced and rising ("UR"), overpriced and rising ("OR") or high and rising ("HR"). How could this information NOT be useful? Where else can you find any attempt at regularly delivering this kind of information on 500 stocks? The number of powerful strategies possible is staggering. Let your imagination run. You will think of many ways to use the publication not even touched on here.
    It can be used as a kind of "second opinion" regarding stocks in which you have an interest. You might find a stock that appears to have a good chart pattern and the earnings and other data posted at various Web sites appear to be good as well. Knowing that these Web sites almost certainly use 12-month trailing data for PE ratios and other metrics (old data based on last year), you might want to see how the stock looks when metrics are based on data derived from a combination of the past 6 months of achievement with projections for the next 6 months. You could create a discipline in which stocks must satisfy your favored metrics from the Web and also certain metrics in The Valuator. If they don’t, you simply walk away from the situation and look for something better.

The Valuator is different not only in the quantity of data it provides, but also in the fact that this data can easily be manipulated and sifted by users. For example, you might sort all stocks by the % TO H.FV (Percent to Historical Fair Value) column so stocks that are most undervalued appear at the top. Then you might select the top 100 of these and sort them again by the STR RANK (Strength Rank) column. This will place the strongest of the most undervalued stocks at the top of the list. You can continue sorting until you have the combination you want. This capability should make it easier to find stocks that satisfy the particular requirements of your discipline. Unfortunately, you cannot do that with our printed version, but you can look for stocks that appear in more than one ranking list. You cannot possibly do this with the typical stock screener. In concept, you could. In practice, you could not. PE, PEG, RAM, Historical Fair Value, % TO H.FV, Strength, and Velocity (as computed here), cannot be found anyplace else. If they are not there, how could you use a screener to sort by them? For example, study the short description of our "Strength Rank" system below. You will quickly see that it involves much more than the simplistic RSI (Relative Strength Index) used at most Web sites. Try this experiment. Use a screener and sort the thousands of stocks out there for Relative Strength. Look at the charts of the top 50 stocks. Print the charts for comparison purposes later. Now print the charts that rank in the top 50 of the 500 tracked in The Valuator using our "Strength Rank" algorithm. The difference will probably amaze you. You will quickly learn that the RSI lets a lot of "junk" through the screen. Many of its top rated stocks will have poor patterns or overhead resistance just above current prices. You will have to see it to really appreciate the difference.

For more detail and other information, see the "Explanations" section below. This section will give you an explanation of the entries in each column of The Valuator.

EXPLANATIONS

The following are "EXPLANATIONS" for the information in each column of The Valuator.   In the descriptions below, refer to the following image (taken from the online version). 

This image shows the kind of spreadsheet that is generated by The Valuator.  It is sortable by those who have Excel 2007 or later.

RISK-INDEX: (Top right corner in the above image) Dr. Felt’s proprietary "market" indicator is based on more than 50 "fundamental" measurements which are combined in an algorithm to yield results loosely correlated with general market risk. The index is not related to the usual technical measurements of volatility. Statistically, the "normal range" for the Risk Index is between 25 and 65. Above 85 is extremely high and suggests "excessive exuberance." (All the "Elves of Wall Street" are afraid and hiding). Above 75 is high (the "Elves of Wall Street" are tense and glancing over their shoulders, some are hiding). Above 65 is somewhat higher than normal (The "Elves" are cautious, but most are not hiding). Below 25 is somewhat lower than "normal" (The "Elves" are acting more aggressively than usual in their transactions). Below 15 is low (The "Elves" are having fun! Many are frolicking near the "on sale" counter). The minimum reading possible on this scale is 0.00.

Low readings suggest a low-risk market more likely to move up with vigor once something positive sets it off. High readings suggest the opposite. Because this is a long-term fundamental indicator, the market can take many months to adjust appropriately to the condition indicated by the index. The market may also move counter to the anticipated direction for many months before correcting (a high-risk market can go much higher).

Investors who like to allocate between cash and stock according to general market risk can use readings to help determine asset allocation. For example, assume you wish to keep at least 40% of your portfolio invested at all times (your maximum cash position will be 60%). You could divide the Index by 100 and multiply the result by your maximum cash position to determine your cash allocation (if the Index reading is 75, multiply 60 by .75 to get 42). This method suggests a 42% cash position or 58% stocks. You would modify this procedure to suit your own tolerance for risk.

STARS (Column A in the above image): Up to two stars may precede a stock. The left star represents "Historical Fair Value", and the right star "RAM Fair Value." If either estimate of "fair value" is not at least 15% higher than the current price, a "-" sign replaces the star. If the stock is not trending up faster than most stocks that are trending up or if both measurements of "fair value" are less than 15% higher, the space is left blank. For example, a "*-" means the stock has been rising rapidly (its 20-day moving average has risen more than that of the average rising stock during the last 20 trading days). 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 a rising trend (as above), and that both the "RAM Fair Value" and the "Historic Fair Value" are at least 15% higher. A "-*" means the stock has a rising trend (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 ranks in the best (lowest) 20% in its PE ratio, "♦" 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. The attractiveness of a stock will depend on your own particular screening system (you may require 1 or 2 stars or, lacking stars, you may require a "♦," or whatever). These indicators are not recommendations. They only highlight stocks that might warrant further attention. See the ranking page for the 44 highest ranked stocks in various measurements.

STK SYM (Column C): This is the symbol used by investment professionals to identify a stock.

FLAG (Column D): This column shows value indications and where a stock is in its cycle. Imagine a stock swinging up and down between extremes and that across the middle of these swings is a horizontal line marking its "fair value." 

This chart illustrates the 8 phases a stock goes through as it cycles between being low and rising and high and falling.  These phase each stock is in is identified by The Valuator. 

This column defines eight positions in a stock’s cycle: "HF" = High and falling (it is at or above its expected high given its current financial profile and it is on its way down), "OF" = Overpriced and falling (it is above "fair value" but below its expected high and it is declining), "UF" = Under-priced and falling (it is below "fair value" and falling, "LF" = Low and falling, "LR" = Low (below its expected low price) and rising, "UR" = Under-priced (between expected low and "fair value") and rising, "OR" = Overpriced (but below its expected high) and rising, and "HR" = High and rising.

TRENDS (Column F): This indicator shows the direction of the 20-day moving average during three consecutive 20-day periods beginning 60 market days ago starting from the left (the most recent period is on the right). An up-trend is "+" and a down-trend is "-." Therefore, if the 20-day moving average moved up between 60 and 40 days ago, down between 40 and 20 days ago, and down during the last 20 days, then "+--" would be displayed.

DIR ±(%) (Column G): This is a trend indicator. It is the change in the stock’s 20-day moving average price, in percent, over the last 20 days. Thus, if the TRENDS column shows "--+" and this column shows 5%, it means the "+" in the TRENDS column was +5%.

20-DAY LOW (Column H): The 20-Day low of a stock in an upward trend is often used as a stop-loss price (5, 10, and 15-day lows are also used, depending on trader aggressiveness). The 20-day low (or whate-ver low you are using) should be monitored daily. Stop-loss orders should be raised as needed but never adjusted downward. Sometimes specialists will try to push a stock down enough to trigger stop-loss sell orders. The additional selling causes the stock to drop lower. Then these specialists buy it back at the lower price. These price fluctuations do not have to be large because the specialists can make a nice profit even if the move is only a few pennies. We have factored in an additional .30 to help protect against such "forced" sales. The actual 20-day low is .30 higher. This type of stop-loss is relatively crude. It is not a very good substitute for the volatility-adjusted stop losses that are generated by the Stops tool because it gives away far too much money when it is triggered. However, it is better than not having a stop-loss at all.

% TO H. FV (Column I): 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 also indicates how much a stock can rise before reaching a fair valuation (according to our "historical fair value" model). It is thus an aid to locating stocks that are undervalued. Stocks that are overvalued have a negative figure in this column.

HIST FV (Column J): We base this estimate of fair value on the historical relationship that has been maintained by the market between data used to measure a company's business fundamentals and the price action of its stock. The relationship is unique for each stock. Then, we use this information in conjunction with recent thinking of analysts regarding the business outlook of the company (for the immediate future) in order to compute the stock's theoretical low and high price and to compute a "Historical Fair-Value." The model does not treat interest rates as a separate factor. Interest rates influence the model only indirectly and to the extent that they influenced stock behavior during the period used as a reference. The numbers generated are not predictions. For example, if the "fair value" price of a stock is 10% higher than its current price, the figure is not a prediction that the stock will actually rise 10% within the next 3 to 9 months. It says only that the stock’s "fair value" is currently 10% above its present price. A stock may not reach its "fair value." The "Historical Fair Value" is NOT a measure of the intrinsic value of a stock but of how the market has been valuing the stock relative to its financial data (For example, how the market may value a company's current earnings based on how it has been valuing the company's earnings historically). After a severe stock decline or market "crash," such measurements may no longer reflect the market realities of some stocks. Analysts are wrong at times, but the market does tend to respond to the expectations of analysts, whether they are eventually proven to be right or wrong.

RAM FV & THE "FED MODEL" (Column K): The "Fed Model" is used to compute market valuations. It does this by using the current interest rate environment as a context for valuing the consensus 1-year earnings estimate for the S&P500 Index. The words "Fed Model" are in quotes because it is not actually the Fed’s model. The term was coined after a 1997 Federal Reserve report to Congress suggested that the bank may have been looking at it -- the Fed itself has never endorsed any stock market valuation method. We prefer to use the RAM (Rate Adjusted Model) to compute the "fair value" for individual stocks and for general market valuations. The RAM uses analyst estimates for the year ending, on average, about 6 months in the future rather than the 12 months used by the "Fed Model." Analyst forecasts for 6 months are, we believe, less speculative and more reliable than forecasts for 12 months. Also, the RAM, unlike the "Fed Model," has no weighting biases. That is, the "Fed Model" gives greater weight to stocks within the S&P500 that have greater market capitalization. The RAM treats all stocks alike. It is not limited to only those stocks that are in the S&P500. We compute the RAM for all stocks tracked in The Valuator. RAM valuations cannot distinguish between a utility and a biotech firm. However, the Historical Fair Value (see Column J above) does make such distinctions. RAMT, is explained in the "Free Tutorials" section of this Web site. It is a theoretical construct that posits a "typical stock" with a typical price and a typical earnings projection.

"EST PE" (Column L): The Estimated PE is based on analyst estimates looking ahead, on average, about 6 months and combining this data with figures for the last 6 months. It is not a 12-month trailing PE (that looks at the past year) as is the case in many newspapers and financial magazines, nor does it try to look ahead a full year. In our opinion, analysts cannot see ahead a full year very well and numbers for the last 12 months have little bearing on what is happening now. We believe our approach gives more reliable numbers that are also more meaningful from an investor’s perspective (because the market also tends to look ahead about 6 months). The figure is the result of dividing the "RECNT PRICE" by the earnings per share that analysts expect over this time period. PEs greater than 99.9 are entered as 99.9 (by reducing column width we can have more columns and entries that are also more readable). Professionals have used the PE-Ratio as an indicator of value for many years (for example, some will buy when a stock’s PE is below the median or average PE of the market and sell when it reaches the median or average).

"EST PEG" (Column M): This 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.

DIV % YLD (Column N): For this column, 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, check "DIR ± (%)" and look at the stock's chart. High yield may be the result of a sharp decline (if so, avoiding the stock may be wise). Dividends can make a big difference in your total return over time. For example, during a 30-year period the S&P500 returned 726% without counting dividends. With dividends, the return for the same period was 1900%.

"EST % GRO" (Column O): This column provides an estimate of the appreciation potential of a stock during the coming year. 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. For example, if the analyst expects a $100 stock to reach $175 to $185 over the next 3 to 5 years, we calculate the average rate of appreciation per year necessary to reach $180 (the average of $175 and $185) in 4 years (the average of the "3 to 5 years" used in the analyst’s projection). 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 any given 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. Therefore, these numbers should not be taken too seriously. 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.

"STR RANK" (Column P): (Strength Rank) measures recent stock strength and gives greater weighting to stocks that show more consistency in their recent performance. 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 results of the latter are then ranked. 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. Traders (and investors) should try to buy stocks early in the development of a strong positive trend in order to avoid stocks prone to "breaking down" shortly after their purchase. 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 in this column 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.

VAL RANK & VEL RANK (Columns Q and R): We use three valuation studies (Historical FV, RAM FV, and ESTIMATED PE) to obtain a composite score and then rank stocks by their composite results. If several of these valuation columns are blank, the composite Valuation Rank in Column Q will be low, even though the stock may be a great value according to one or two measurements of value. If one of the valuation scores is blank, ignore the composite scores in Column Q and look at the scores in individual valuation columns. For the VEL RANK (Column R), we rank the change in the 20-day moving average of the price 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 are more sensitive to recent changes and "recognize" consistency of performance better than would a single longer moving average. Even so, this indicator is best used for velocity rather than strength of trend. See "STR RANK" for strength of trend.

BLANK SPACES: These occur if earnings estimates are dramatically reduced or are negative, rendering statistical inferences much less meaningful. If stock or market dislocations have generated unreliable "fair value" readings, blank spaces may replace data in affected columns. Blank spaces may also mean data was not available.

STATISTICS

The Valuator also includes a table with the following information.
"FV" means "Fair Value" in this List (the numbers shown are obsolete).
The formatting may be different, but this is the kind of data displayed.

AVERAGE RECENT PRICE  =  44.34
MEDIAN RECENT PRICE  =  36.41
AVERAGE DIRECTION OF 20-DAY MOVING AVERAGE ±(%)  =  5.14%
AVERAGE HIST. "FAIR VALUE" =  55.28
MEDIAN HIST. "FAIR VALUE"  =  39.23
ESTIMATED AVERAGE LO   =  41.02
ESTIMATED PROBABLE AVERAGE HI PRICE  =  72.88
RECENT PRICE TO HIST. "FV"  =  24.68%
FROM EST PROBABLE LO TO HIST. "FV" =  34.77%
MED EARN EST 6 MOS FWD =  2.34
MEDIAN YIELD =  1.39%
AVG RAM "FAIR VALUE"  =  98.98
MEDIAN RAM "FAIR VALUE"  =  40.38
CURRENT S&P500 INDEX =  1109.55
13-WEEK TREASURY YIELD =  0.15%
10-YEAR TREASURY YIELD =  2.52%
AV EARN ESTIMATE 6 MOS FWD   =  2.8
AVERAGE PE =  19.05
MEDIAN PE =  14.89
AVERAGE ESTIMATED % GROWTH IN PRICE =  13.35
MEDIAN ESTIMATED % GROWTH IN PRICE =  13.33
AVG 100-DAY DELTA =  10.69%
MED 100-DAY DELTA =  10.97%
ADVANCING ISSUES =  459
DECLINING ISSUES  =  42
AVERAGE YIELD =  1.67%
20-DAY MA CHANGE (LAST 20 DAYS) =  5.14%
20-DAY MA CHANGE (20 DAYS AGO) =  -1.95%
20-DAY MA CHANGE (40 DAYS AGO) =  1.77%

Who Is Dominating?
Bulls over Bears 3.13 to 1 
Bulls gaining strength

 

EXPLANATION OF THE ABOVE STATISTICS TABLE:  Using historical relationships between financial data and stock behavior, we estimate probable low and high prices for each stock and compute the average for all stocks (see "Estimated Average Lo" & "Estimated Average Hi" ). "Advancing Issues" gives the number of stocks with a rising 20-day average price. "Declining Issues" gives the number of stocks with a declining 20-day average price. The MED EARN EST 6 MOS FWD and the AV EARN EST 6 MOS FWD combine earnings for about the last 6 months with analyst projections about 6 months ahead. Note the last 3 items above "Who is Dominating?" The most recent 20-day rate-of-change (ROC) in the 20-day average price of each stock is computed. The same ROC figures are computed as of 20 days ago and 40 days ago. The average of each of these measurements is posted. If the average 20-day moving average was declining 40 days ago but is rising now, the market may be turning from a down market to an up market, especially if it was also rising 20 days ago. Together, this data can be used as a tool for analyzing general market behavior over the last 60 trading days (about 3 calendar months). The AVERAGE 100-DAY DELTA was created by Dr. Felt to measure the current vector (rate of change and direction) of the average 50-day average. It is simply the average 1-day percentage change in the 500 or so 50-day moving averages multiplied by 100. The MEDIAN 100-DAY DELTA is the median 1-day percentage change in all of the 50-day moving averages multiplied by 100. All Valuator metrics that pertain in some way to value (PEG, PE, etc,) are based on a unique approach to calculating "fair value." We believe the resulting measurements are far more useful, meaningful, and reliable than what is available anywhere else on the Internet. For a list of stocks tracked in The Valuator, click on Valuator Stock List.

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Develop A Trading or Investment Discipline.

The Valuator contains both fundamental and technical information. This market "newsletter" uses earnings and other fundamentals to determine fair value. The valuation models used are custom-designed and unique for each stock. The Valuator ranks stocks using various screens (PE, velocity, PEG, yield, strength, and so on). It uses earnings estimates that look ahead about 6 months on average. It is a tool that facilitates disciplined investing. It helps limit risk by showing how much a stock is undervalued or overvalued, shows the 20-day low (used by some to set a stop-loss), helps you allocate assets to lower portfolio risk when the market is risky. When used correctly, it could help you protect your assets in a market crash. It also alerts ("Flag" column) as to where a stock is in its cycle as it oscillates between being undervalued and overvalued. In addition, it flags undervalued stocks that are rising rapidly (stars to the left of the name). The Valuator is a tool that we use ourselves. Since we had to produce the publication for our own trading and investing activities anyway, we decided that we might as well make it available to others by subscription. We designed it to meet the needs of a systematic or disciplined approach to investing or trading. If you have a spreadsheet, data from the online version can be sorted and ranked. For example, you could create a discipline in which you select stocks only if they have to appreciate at least 15% to reach fair value, that are not only low but also rising faster than half of all rising stocks (a star is shown on the left side of the star column located at the left of the company name). You could add other parameters to your strategy, like a PE ratio of so much and a certain percentage dividend yield You could combine the information with the Donchian Alerts subscription. It tracks all the stocks in The Valuator, giving the Donchian alerts for those stocks on a daily basis. You could incorporate a "Strength" listing (The Valuator sorts stocks by their strength scores and lists them in rank order with the "strongest at the top of the list (approximately 40 are listed in the printed version, a few more are listed in the online version). You could also require a "setup" chart configuration and a "trigger event" before buying. See the bottom of the "Stock Alerts" page for information on some "setups."


Compare With The Typical Market Letter

The Valuator costs much less than the price of a subscription to the average stock market newsletter even though it provides much more. The average market letter has 8 to 12 pages. On January 22, 2001, Money reported on a survey it made of 61 market letters. The average annual subscription price for these newsletters was $220.46. We do not have a current figure, but you can imagine what the average price would be now, after adjusting for inflation. The data provided by the typical 8 to 12-page letter is rather limited and the data that is provided cannot be sorted, sifted, or manipulated by the subscriber.

You can print the online version of The Valuator yourself if you want to work from hard copy. A hard copy would require at least 20 to 24 pages (printed on one side of each page). The standard stapler cannot penetrate that many pages, so a different method of binding would have to be used. That is fine on a per issue basis, but if you want to build an archive of the data over time, there is a better way to do it.


An Online Version & A Printed Version

People sometimes ask for past issues of The Valuator. They use The Valuator online for several months and then decide they want to research or test the effectiveness a new discipline or strategy. To do so, they need the data from previous issues. We do not keep a stockpile of extra copies to send out, but we do offer a hard copy edition.

We have formatted a printed version of The Valuator so that all the data on its 500 or so stocks (20 to 24 pages) is provided in a small booklet of ten double-sided 7" x 8½" pages. The only thing we could not fit on the pages is the industry each company is in. The Valuator booklet is thin, light, and easy to store.

A six-month subscription to the online version is currently available for $75. A one-year subscription is $135.
A six-month subscription to the printed version is $95. A one-year subscription is $160.

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We know of no other market letter that provides as much information (with regular follow-up) at anywhere near that price. However, there are many market letters of about half the size (with a lot less information) that are available at about twice the price.

You must be able to open an Excel spreadsheet on your computer to be able to download the spreadsheets of the online version of The Valuator. To test your system, click on the following link. When given the choice of saving or opening, click on "Open." The spreadsheet should open. It will have today's date on it, but the information shown is very old. The date is automatically updated whenever the spreadsheet is opened, but the rest of the spreadheet is not. If it opens (it may take a few moments) and you see part of a sample spreadsheet, then your system can access the spreadsheets of The Valuator. Click Here To See a Sample Spreadsheet.

Click here to see a video demonstration of The Valuator

For a brief summary of the main features and an opportunity to place a subscription order for the online version, click on ORDER.

The printed version can also be ordered from the "Products & Prices" page.

Click here to return to the top of this page.

   

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