Use Quadrix As Your Compass

11/3/2014


The vast majority of the roughly 5,000 stocks scored in our Quadrix stock-rating system are U.S.-based companies. This focus on U.S. stocks stems partly from how Quadrix works.

A major strength of Quadrix is its comprehensive nature; the scores take into account a bunch of data points across several important areas. In all, more than 90 variables in six major categories — Value, Momentum, Earnings Estimates, Performance, Quality, and Financial Strength — contribute to Quadrix scores.

While not every U.S. company has 100% coverage across all 90-plus data points, we can capture a fairly high percentage of the variables for most U.S. stocks. This data coverage gives us confidence that the Quadrix scores accurately evaluate most U.S. companies.

The situation changes with foreign stocks. Partly because of data availability and reporting issues, the number of international stocks scored in Quadrix is rather limited — only around 10% of the Quadrix universe. However, despite the lower coverage, Quadrix can still help you ferret out opportunities among international stocks.

The table below lists eight international stocks with Quadrix Overall scores of at least 90, putting them in the top 10% of stocks with Quadrix scores. Each of these stocks provides enough statistics to give us 85% of the material used to compute Quadrix scores. We call this percentage "OK to rank," and 85% is enough to suggest an Overall score truly captures the company's operating picture.

We currently recommend one foreign stock, Canada-based Magna International ($98; MGA). This auto-parts manufacturer sold off with the market correction but has staged a nice rebound off the correction lows. Rival Lear ($91; LEA) rallied Oct. 24 on strong September-quarter results; Magna will announce its own profits Nov. 5. The firm has exceeded earnings estimates in each of the last four quarters and should keep that streak alive. With an Overall score of 95, Magna earns a place on our Focus List and Long-Term Buy List.


Another especially noteworthy stock on the list is Ireland-based ICON ($54; ICLR). The firm performs contract research for the pharmaceutical, biotechnology, and medical-device industries. The company is coming off a solid September quarter; per-share profits grew 75% to $0.79, $0.09 better than the estimate. Sales rose 14%. The company projected per-share earnings of $2.74 to $2.79 for full-year 2014, up from an earlier range of $2.62 to $2.68 and above the consensus of $2.63 at the time of the announcement. ICON, an attractive option among midcap international stocks, is rated Best Buy in our sister newsletter, Upside.

INTERNATIONAL QUADRIX LEADERS
The Forecasts currently has one foreign stock, Magna International ($98; MGA), on its Focus and Long-Term Buy lists. ICON ($54; ICLR) is a Best Buy recommendation of our sister publication, Upside.
Company (Price; Ticker)
Div
Yield
(%)
Market
Cap.
($Bil.)
Quadrix
Overall
Score
Industry
Country
AerCap ($42; AER)
0.0
7.0
90
Leasing svcs.
Netherlands
Baidu ($225; BIDU)
0.0
78.9
90
Internet software
China
ICON ($54; ICLR)
0.0
3.4
95
Life sciences
Ireland
LyondellBasell ($91; LYB)
3.1
46.5
99
Chemicals
Netherlands
Magna Int'l ($98; MGA)
1.6
21.5
95
Auto parts
Canada
Marvell Tech. ($13; MRVL)
1.8
6.8
95
Semiconductors
Bermuda
Shire ($196; SHPG)
0.3
38.8
92
Pharmaceuticals
Ireland
Teva Pharma. ($54; TEVA)
2.1
46.7
90
Pharmaceuticals
Israel

Too early to call Alibaba a treasure

Shares of Chinese internet giant Alibaba Group ($98; BABA) declined from their initial closing price of $93.89 in the first month of trading, but rallied strongly in the second half of October. Alibaba trades 45% above the initial public offering price of $68, but few investors got in at that level; the shares opened trading on Sept. 19 at $92.70.

Alibaba earns a Quadrix Overall score of 58, with scores of at least 85 for Momentum, Quality, Financial Strength, and Earnings Estimates. In contrast, Alibaba earns a Value score of 12. Given Alibaba's stronghold in China (640 million internet users, comparable to the U.S., India, and Japan combined) and massive size ($242 billion stock-market value), you might wonder why we don't add the stock to our Monitored List and provide an A, B, or C rating for it.

Blame the data. We only have 40% of the statistics used to compute the Overall score, not enough to trust the number. When more data become available, we'll add the stock to the Monitored List and rate it.

Alibaba operates a business-to-business marketplace and numerous other e-commerce destinations, and also provides business services including cloud computing and marketing. Think of Alibaba as a larger version of Amazon.com ($294; AMZN), with more than a hint of Google ($558; GOOGL) thrown in.

At 40 times projected year-ahead earnings and 32 times the estimate for the fiscal year ending March 2016, Alibaba is pricey, but not off the charts; analysts expect annualized profit growth of at least 25% over the next two years. However, Alibaba comes with risks American firms don't face, and not just the innate hazards of operating in China.

Owners of Alibaba stock don't actually own a piece of the business, but an offshore entity that holds contracts that provide rights to a piece of the business — contracts many U.S. lawyers consider unenforceable. Alibaba's use of variable interest entities (VIEs) calls into question what investors actually own and the value of those stakes. Action by either the Chinese or U.S. government could affect VIEs in ways impossible to predict. We don't advise subscribers to purchase Alibaba, but the show is worth watching.


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