What's Working Best In Quadrix

9/24/2012


While our Quadrix system has effectively identified outperforming stocks over long periods, the engines of that success can vary over short periods.

For example, while Value has historically been the most effective Quadrix category score, Quality has worked best over the last 12 months. The top one-fifth of S&P 1500 Index stocks as measured by Quality score outperformed the average stock in the index by an average of 3.7%. Not surprisingly, four of the top seven Quadrix factors over the last year come from the Quality category. Below we discuss the seven most effective individual factors:

Quality: Earnings predictability considers the variability and growth of quarterly earnings over the last five years. Return on assets and return on equity measure how well companies wring profits from their resources. Three-year equity growth considers firms' rise in book value.

Value: Dividend yield has been the best factor in all of Quadrix over the past 12 months. But over long time periods, it has underperformed most other Value factors.

Financial Strength: A low number of special charges is viewed as a sign of high-quality profits.

Earnings Estimates: Earnings dispersion measures the spread of analyst estimates around the average for the current fiscal year. A tight spread suggests confidence that a company will attain a given level of profit.

For a list of all A-rated stocks scoring well in the seven statistics, visit www.DowTheory.com/Go/Top.

THE TOP SEVEN QUADRIX FACTORS
Here we show the most effective factors in Quadrix over the last year. For instance, stocks that score in the top one-fifth for dividend yield have outperformed the average S&P 1500 stock by an average of 5.1% in the past 12 rolling 12-month periods.
Avg. 1-Yr. Outperformance
--------- Of Top Scorers ---------
Quadrix Factor
Quadrix
Category
Last 12
Months
(%)
Last 5
Years
(%)
Since
Inception *
(%)
A-Rated Stocks
In Top 25%
Dividend Yield
Value
5.1
0.8
(0.3)
ABT, CVX, INTC,
JPM, PAA
No. Of Special Charges
Fin'l Str.
4.0
(1.5)
0.1
AAPL, AFL, BBBY,
CVS, CVX
Earns. Est. Dispersion
Earns. Ests.
3.9
2.9
1.8
ABT, BAX, CTSH,
MDT, SYK
Earnings Predictability
Quality
3.8
0.1
0.6
ADS, DTV, ESRX,
GOOG, MCK
Return On Assets
Quality
2.8
1.8
0.0
BBBY, CF, DTV,
FL, GOOG
Return On Equity
Quality
2.8
1.3
0.3
AAPL, ADS, AXP,
CF, M
Three-Yr. Equity Growth
Quality
2.6
1.9
0.5
AAPL, AFL, DTV,
GOOG, UNH
Note: Quadrix scores are percentile ranks, with 100 the best.     * We have used Earnings Estimates factors since February 2004, while the other factors date back to December 1994.

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