I hadn't seen the story on the barbed wire but I like it as you explained it. But maybe I'm not applying it correctly, as I look at ADP's section 2 and I see good things: steady growth in pre tax inc (line A) with the exception of the dip in 1999. 2002's figure is higher than 5-yr average. Nice.
Line B (ROE) shows a nice, steady increase since 1998, from 18% to 21.6%. I look for companies with ROE above 15, so this is very strong IMO.
I like the extremely low debt in line C.
So what am I missing in this barbed wire test? ADP's section 2 looks like one of the best I've seen.
(I should mention that I use OPS data from the NAIC site and when I look at the PERT Q and Y I only get four quaters of data, for some reason. I haven't looked into this any further, but I need to. You use AAII data, right? What does that cost?)
OTOH, I looked at Baxter Int'l (BAX) because it was featured in March by NAIC as the undervalued company of month. I see an up and down line B and way too much debt for my tastes in line C. So I would argue this one doesn't past this test.
BTW, has anyone noticed how the BI magazine has been on a terrible streak lately in picking stocks to study? It's almost laughable, IMO. Baxter had an "Avoid" rating by S&P on Feb 1 citing earnings quality issues, option expenses and too optimistic pension return assumptions. It has absolutely imploded since BI ran the story.
Many other picks have a 3 rating by Value Line.
The current issue has a follow-up on their undervalued pick 18 months ago, EMC, which has dropped 62%!!! They dryly state, "This fails to satisfy (our) goal that an Undervalued Stock should rise by 20%" Hey, when you screw up this big at least you can tell it straight!
Just for yucks I punched in some of the magazine's picks for issues I have. Look at how far Charles Schwab has fallen since it was featured, from $17 to 7. BAX's chart looks darn scary. Fibermark fell from $8 to $5 in a short time recently. Then there is Enron, BI's most infamous pick.
finance.yahoo.com
What do make of all this? Maybe it's like the so-called Sports Illustrated cover jinx and you go and short these companies once they're featured! Or maybe you look at them again now that they been battered?
- Kris |
