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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era
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To: seminole who wrote (39)3/5/1998 11:29:00 PM
From: Berney  Read Replies (1) of 1722
 
Richard et al:

I hope over time that folks will utilize this thread to share how they
determine value. I essentially utilize four steps: 1) a process to
limit the universe, 2) a FA scoring system, 3) a review of S&P
ratings, and 4) a Graham formula. This communication focuses on the
FA scoring system. I've posted it before, but, since I refer to the
FA scores frequently, I wanted to get it on record on this thread.

I use a scoring system that I've developed over time, and, which will
undoubtedly evolve over time. The essence of the system is that PE by
itself is meaningless. Like, compared to what? Here it is:

1) Score "1" if the PE ratio is less than the historical
one year revenue growth rate;
2) Score "1" if the PE ratio is less than the historical
three year revenue growth rate;
3) Score "1" if the PE ratio is less than the historical
one year EPS growth rate;
4) Score "1" if the PE ratio is less than the historical
three year EPS growth rate;
5) Score "1" if the PE ratio is less than the prior year
Return on Equity (ROE);
6) Score "1" if the PE ratio is less than the average of the
prior 5 year's ROE (but I will use 4 if 1 is not meaningful);
7) Score "1" if the prior year ROE is greater than the
two-year ago ROE (I want to see ROE increasing);
8) Score "1" if at least 8 of the top ten mutual funds were
adding to their positions in the prior month;
9) Subtract (a little different) "1" if the the PE ratio is
at an all-time high as compared to the prior 5 years;
10) Score "1" if the the stock has beat the Index in at least
four of the prior five years and the current year with no
negative performance (the best I can do at stating it);
11) Score "1" if the PE ratio is less than the future five
(projected) year annual EPS growth rate;
12) Score "1" if the current ratio is greater than 1.3 (the
average of the S&P the last time I checked);
13) Subtract "2" if the company had negative free cash flow
last year (companies and individuals -- myself excluded --
should live within their means);
14) Score "1" if the revenue of the company doubled from 1992
to the current trailing twelve months;
15) Score "1" if the company has had sequential, annual
increases in EPS for the previous five years and the trailing
twelve months.

Thus, a perfect score is 13. Believe it or not I do all this manually
right now.

Enjoy,

Berney
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