THE INTERPRETING THE RESULTS EDITION
12 APRIL 2012
How Do You Interpret the Results of a Stock Study?
Interpreting a Toolkit 6 stock study or Stock Selection Guide requires a good grasp on a few factors. In the StockCentral Exchange forum, member Evelyn Wenning asks: "Probably most of the experienced traders know this but not all of us. What are the recommended ranges for various factors given on Stock Study? I recall some as Relative Value 80-110%, PEG below 1.3..."
StockCentral guru Doug Gerlach responded with: "Everyone will have their own rules of thumb to use, but here is some food for thought:
"Risk/Reward (Upside/Downside) Ratio must be 3:1 or higher & current price must be in Buy range.
"If Relative Value is less than 100%, an undervalued situation is possibly indicated. If Relative Value is below 80% or so, there is probably some fundamental change in the company that has caused the current P/E to fall, so it's not a reliable indicator of valuation. If Relative Value is much above 110%, it's probably too overvalued to purchase at the current price.
"Future High P/E Ratio should be no more than 25, and no more than 1.5 times the Future Low P/E Ratio.
"If the PEG Ratio is much above 1.3, the current price may be too expensive compared to the expected future growth.
"If the Projected Compound Annual Total Return is below 15%, then there may not be enough potential return to warrant buying at the current price."
What are your preferences for the limits of judgment and interpretation on your stock studies? Let us know your thoughts in the "SSG 101 — Recommended Factors" thread.
It's Almost Like a Time Machine for Stock Decisions
Ever wonder what happened to a stock after your club sold it? The new Sold Securities Report on myICLUB.com can provide some answers.
ICLUBcentral recently launched a new report for investment clubs using myICLUB.com that details the performance of stocks after you've sold them! The Sold Securities Report, available to all club members in the Other Reports section of your club website, gives you insight into whether a sale decision was the right move for your portfolio.
The Sold Securities Report lists all stocks your club has ever sold, then calculates the returns of those stocks starting on the sale date and going all the way to the current date. In addition, the compound annual return for the company is compared with the overall market as measured by the Vanguard 500 Index Fund (the S&P 500) and the Vanguard Total Market Index Fund (the Wilshire 5000).
To use the report, compare the CAR for the security with the two market indexes. If the stock's return is higher than the return of the market, selling the stock might not have been the best decision. If the market performed better than the stock, selling may have been a good choice.
Of course, there are lots of reasons you might decide to sell a stock, and this report wouldn't reflect those considerations. In addition, since the return figures are annualized, results may be skewed for short holding periods and/or wide price swings. So take that into account when reviewing results.
This is just another way that myICLUB aims to help clubs to become better investors!
Stocks on Sale
The StockCentral Stock Screener is one of the easiest ways to find candidates for your personal or club portfolio. Using just a few points of data — but the most important criteria when it comes to selecting high-quality companies — you can easily search for ideas using your personal preferences.
Tax printers are initially released using “draft” forms. Final forms will be released and automatically updated in your tax printer when forms are approved by the IRS and the appropriate state agencies, which could occur as early as mid-January or as late as early March. By installing the draft forms package, you can make sure that the program works correctly and that you have entered the necessary data properly.
To make it even easier, the StockCentral brain trust compiled a set of "pre-defined" screens to help you get started in your quest. You can display these with a single click, then you can modify the results to add or remove criteria.
The data is updated weekly, so you can visit the site regularly for more ideas.
A good place to start working with the Screener is the Stocks on Sale screen. These are companies that have a historical value ratio (HVR, similar to relative value) between 0.70 and 1.0 and have a Take Stock Quality Rating of Acceptable or Desirable. The companies that pass this screen all have the minimum level of quality that we like to see in our stocks but are trading at or below their historical averages, indicating potential opportunities.
This week, 11 companies are on the Stocks on Sale report, from nine different industry groups. Log in to the site now to discover the names of those nine companies!