Comparing Similar Stocks

10/4/2010


Here at the Forecasts, we get a lot of questions about our stock-picking strategies. Below, we answer some of the most common.

Q I’m interested in learning how you decide between two stocks in the same industry. What tools do you use to compare companies?
A The Forecasts relies heavily on our Quadrix® stock-rating system, especially the Overall score, when choosing between stocks in the same industry. Quadrix Value scores have shown to be especially helpful as well when selecting stocks. For example, the Forecasts recently added CSX ($56; CSX) to our Buy and Long-Term Buy lists. One factor that helps CSX versus its railroad peers is the stock’s Overall Quadrix score of 92. Competitor Norfolk Southern’s ($60; NSC) Overall score is a solid but still lower 82. CSX’s Value score is 55, versus 48 for Norfolk Southern. Advantage CSX.

Q Do you also perform sector-specific analysis?
A Yes, we also looks at stocks through the lens of two sector-specific scoring systems. The 12-Factor Sector score uses 12 statistics crucial to stock performance in a particular sector. The Reranked Overall score is computed by reweighting the six category scores used to derive the traditional Overall score, putting more emphasis on the categories especially important to that industry. Returning to the railroads, CSX earns a 12-Factor Sector score of 79 and a Reranked Overall score of 95 (both out of a possible 100). Norfolk Southern’s 12-Factor score is 56 and its Reranked Overall score is 88. Advantage CSX.

Q What if two companies score comparatively well in Quadrix? How do you break the tie?
A One strategy is to make sure Quadrix scores tell the whole story for both companies. Quadrix does not reflect such factors as regulatory changes, new competition, and future changes in end-market demand.  Consistency of operating results will also influence our decision. Does one company have a superior track record relative to the other? Does one have more positive profit-estimate trends, or a better history of acting in shareholders’ interest? The presence of a catalyst — for example, a new product, a change in management, or takeover appeal — can also help us differentiate between companies. Finally, such indicators as insider buying or a strong stock chart may tilt us in favor of a company.

Q Can subscribers use the same tools to compare stocks?
A Absolutely. The Forecasts’ Web site — www.DowTheory.com — provides Quadrix scores for thousands of companies. Simply enter the Subscriber Area of the Web site and click on the “Quadrix Tools” link, where you will find our “Quadrix Comparison” feature. In addition, subscribers may see sector-specific scores for many companies by using the “Search by Ticker” feature. To enter the Subscriber Area, use your account number as both username and password. Once in, you can change the name and password.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com