The following is a previous post from LaFountain, but maybe he could respond to any questions, I believes he still posts.
To: Ken Jordan who wrote (5185)
From: A. A. LaFountain III Tuesday, Jun 29, 1999 10:52 AM ET
Reply # of 7416
Ken: re "DayGrading"
Nice word play.
Now about my shifts in ratings...as I have explained on some other threads on SI, my ratings are solely driven by the relationship of the stock price to my 12-month target. That "target" is a projected value that I generally derive from the EPS growth rate. However, in the case of ALSC, I am using a methodology based on the asset valuation (and it's probably a conservative valuation, but I can live with that).
In any event, when there is 35% or more potential gain to my target, the stock merits a Strong Buy. Should the potential gain decline to less than 20% (either due to share price appreciation or an adjustment to the "target"), I lower the stock to a Buy.
In this particular instance, I had lowered my rating to a Buy last week when the stock was up over $10 and my target was only slightly higher. I have decided that the probability factor for the closure of the UMC deal was too low, and have moved it up from 2/3 to 85% (this is fairly arbitrary, but so be it), which more than offsets the decline in UMC stock price from where the target was calculated last week. With the stock off 10%, the spread between the now lower stock price and the now higher target ($12.50) was enough to justify the rating change.
There are times when the relatively small percentage point change between a 35% potential gain and a 20% potential gain can make this process seem a little screwy (particularly when dealing with a low-priced stock). However, it is consistent...and I feel that a disciplined approach is inherently better than willy-nilly. - Tad LaFountain |
