Your Pressing Questions

1/4/2016


The Forecasts has thousands of subscribers. We cover nearly 200 stocks, produce more than 150 original stories in the newsletter each year, and use a quantitative-analysis system that generates percentile ranks for roughly 5,000 stocks.

There's a lot going on. No surprise you guys have questions.

In the following space we'll address some real questions asked by readers in recent months. The answers will provide many of you with the tools to make better use of your subscription.

Q Every week on page 8 you provide a link to download statistical reports on the Analysts' Choice stock. Can I get these stats for other stocks?

A We provide Individual Stock Reports free for all stocks on our Monitored List. Login to the Subscriber Area at www.DowTheory.com, then type the ticker in the box in the left column. On the ticker page, look for the Monitored Stock Report link to the right of the Quadrix scores.

We create ISRs for every stock in the S&P 500 Index. Those for companies not on our Monitored List are available for a modest fee of $3 or less. Click on the Individual Stock Reports link in the Tools & Resources center in the left column of the Subscriber Area page (marked 1 on the picture at right) for details.

Q I just started taking the Forecasts and have some questions:

1) Where can I find dates stocks were added to the Buy List and Focus List?

2) Where can I find Quadrix scores for each stock?

3) What are the target prices for your recommended stocks?

4) How do I know a stock is a sell?

A Start by logging into the Subscriber Area. Much of what you want can be found there.

1) Visit our Upgrades/Downgrades page (links are marked 2 on the picture below) to see recent rank changes. From that page you can link to historical purchase prices and dates.

2) In the left column of the main Subscriber Area page you'll find a box under the header Search By Ticker (marked 3). Input your ticker, and our site will take you to a page with Quadrix scores for the stock. We generate scores for about 5,000 stocks.

3) We don't use target prices on either the buy or sell side. A stock is either recommended at current prices or it isn't.

4) If you're following our buy lists (find those lists on page 7 of your newsletter or via the Our Portfolios links marked 4), any stock not on the list is technically a sell. If you don't take such a tight approach to buys and sells, then consider a decline in Quadrix Overall score as a warning sign. We generally limit ourselves to stocks scoring above 80 Overall. Whenever we sell a stock, we mention it in the newsletter and in our twice-weekly hotlines, with disclosure for every transaction.

Q When you recommended selling Ameriprise Financial ($107; AMP) in August, its Quadrix score was well above 90. I know you said the challenges facing asset managers played a part in your decision, but could you explain why Quadrix scores were so misleading in this case?

A Quadrix scores are important analysis tools, but not the sole drivers for stock selection. Keep in mind that we provide scores for about 5,000 stocks, which means that about 500 score in the 90s. We focus most of our analysis efforts on those stocks because they have better prospects, but a high Quadrix score alone is insufficient reason to own a stock.

We reject plenty of high scorers for reasons no quantitative system, no matter how comprehensive and powerful, can capture. Those reasons include macro issues related to the industry, company-specific news that affects future business opportunities, government regulation, increased competition, etc.

Ameriprise's high Quadrix score wasn't misleading because the stock did look good from a variety of statistical angles. Quadrix scores never lie about the statistics, but the statistics sometimes lie about the company's investment appeal. Our downgrade of Ameriprise sprang from issues unrelated to the statistics.

Q Both oil prices and energy stocks are down big, and I fear they'll take down the market. What's your opinion about the energy sector?

A Our outlook is reflected in our stock picks. At the moment we don't recommend anything in the energy sector, and none of our stocks from other sectors has significant energy exposure. We aren't optimistic about energy, but neither do we think it will derail the economy as a whole.

Q Do you recommend any mutual funds or ETFs that offer exposure to technology or health care?

A The Forecasts primarily focuses on common stocks. We provide mutual fund recommendations, but confine those picks to funds that cover fairly large swaths of the market.

In our view, investors seeking direct exposure to health care or technology should purchase our recommended stocks from those sectors, rather than a sector fund. However, if you seek sector funds, you can find our percentile ranks on many of them at the mutual funds section of our website. Log into the Subscriber Area at www.DowTheory.com, then click on the Mutual Funds/ETFs link in the green bar near the top, marked 5 in the picture below.

Q Does a high Quadrix Value score reflect a higher valuation, or a deeper discount?

A All of our Quadrix scores are designed such that a high score is better than a low score, a continuity that makes the ranks easier to use. This means that with valuation metrics, a lower ratio yields a higher rank. In other words, a Value score of 75 implies a cheaper valuation than 25.

Q I like the idea of stop-loss orders to protect some of my profits but can't figure out the price point to trigger a sell. Can you provide guidance?  

A We aren't fans of stop-loss orders. They get you out when stocks dip beneath a threshold price level, but sometimes stop orders result in sales well below that level. In addition, our research suggests always selling on minor pullbacks can hurt returns.

We have done studies that created portfolios in which we sold stocks after they declined 5%, 10%, and 20%. We found that if you stuck to stocks that scored well in Quadrix, a buy-and-hold strategy provided better returns than one that sold at a predetermined break point. The reason? Stocks are volatile, and it's not uncommon for one to take a dive, then roar back to new highs.

Q If I'm investing today in the Buy List, how do I know a stock won't be removed soon?

A There's no way to predict if we will remove a stock from one of our lists soon. We revisit every stock twice per week, and once our opinion changes, we sell. That analysis system requires us to take a fresh look at our stocks on a regular basis, which is a good thing. However, our approach doesn't lead us to set specific criteria for downgrades, which means we usually won't know a stock is going to be sold until we make the decision. Once we decide to sell, we get out quickly.

Every Buy is a Buy until we sell it. Some stocks remain on our lists for years, others fall off after a few months if they run into problems. Readers who want to follow our lists should buy the entire list. You may have to sell a few of them fairly soon, but after a few months the portfolio will smooth out.

Q Southwest Airlines ($43; LUV) and American Airlines ($43; AAL) earn similar Overall scores but very different 12-Factor Sector scores. How can this happen?

A Our 12-Factor scores rely on a dozen individual statistics out of the nearly 100 used to compute the Overall score. Companies can earn similar Overall scores but differ widely on many individual stats. Southwest earns a 12-Factor score of 100, versus 58 for American.


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