Hi Grabber, I know nobody likes to listen to me talk about Value Line, but their "Stock Price Stability" rating goes a long way towards defining Frequency and Amplitude. Screening V/L for very low Stock Price Stability ratings in the industry sector you've chosen is a way to discern between one company and another.
It also isn't related to BETA. In other words, the stock in question could have a very LOW BETA and still have a very low "Stability" rating. So, you might find that an oil driller has a BETA of 0.65, but also has a Stock Price Stability rating of 5 on a scale of 5 to 100 (100 being most stable). What would this mean? It means that it doesn't track the market's moves, but is jumpier than a cockroach in a hot frypan!
This measure can't be used to determine a great company, but might help you decide between two companies in the same general business. As I've mentioned before there's necessary thinking that happens long before this screen is used and money is invested. It's still necessary to know where you want your money invested (by sector) before you choose which stock to own.
In Value Line, there's nearly 1300 of their 5000 stocks that have a rating <= 5, for instance. There's 63 companies in the "Retail (Special Lines)" group, for instance that have very low Stability ratings. Of those, 39 have a Price/Book Value ratio of less than 2.0. And of those 39 companies, only 5 have a 5 year Book Value growth rate of 15% or more.
So, if I were searching for a new investment and I'd decided that Specialty Retail was where I wanted to spend my investment dollars, now I have a list of 5 companies that don't look too bad from a value point of view, growth of Book Value and are unstable as can be!
This short list might just contain some dandy AIM candidates. This same sort of analysis could be done for any sector which one could identify.
Unfortunately I don't currently have Value Line's formula for how they define Stock Price Stability. If anyone has the "paper" version of V/L and is willing, please look in the supplimental booklet for the definition. I know it's in there, but I loaned my book out 7 years ago and never got it back!
BTW, of the five specialty retailers found with that screen, only ONE have I heard of before!! Guess I'm not a very good shopper!!
Best regards, Tom |
