Scottish System Picks 12 Strong, Cheap Stocks

To compare a company's current intrinsic value yield with long-term historical levels, Valu-Trac ranks all of the monthly data points from 1987 to the present and divides them into four quartiles. To compare the current level with the past, the system notes where the current intrinsic value yield lays with respect to bands drawn 1.5 standard deviations above and below the rolling three-year mean. When the current IVY is high relative to the past, it rates an A; when it's low relative to the past, it rates a D. Naturally, ratings of B and C are in between.

The Momentum Factor

Valu-Trac's buy and sell signals aren't generated, however, until price momentum is consulted, because compelling value alone is not enough. The firm uses a technical indicator developed by Edwin Coppock that smoothes the year-on-year change in price with a 10-month weighted moving average. Analysts are unconcerned with the level of momentum, focusing only on direction -- rising or falling. A rating of 1 means momentum is rising; a rating of 4 means momentum is falling.

In the end, each stock is assigned a three-part rating that signifies its current intrinsic value yield's relationship to its three-year average, its price momentum and its intrinsic value yield's relationship to its industry's average. Stocks rated A1A through B2B are rated buy, while stocks rated C4C through D5D are rated sell.

Now that you're thoroughly confused, you're probably wondering where you can get the rating. Unfortunately, it's only available to professional investors who subscribe to services of the research and brokerage firm International Strategy and Investment Group, or ISI. But Hess said the firm is mulling the possibility of developing a hedge fund or mutual fund based on the system.

For now, I'll supply some of the top buys and sells regularly, though not frequently, in my column. Here are the Valu-Trac buys and sells for the Nasdaq 100 at the moment.

Nasdaq 100 -- Valu-Trac Buys and Sells
Company	Signal	Condition	IVY	April 14, 2003 Close
BEA Systems (BEAS:Nasdaq)	Buy	A1B	0.85	$9.93
Cytyc (CYTC:Nasdaq)	Buy	A1B	0.85	12.98
Check Point Software (CHKP:Nasdaq)	Buy	A2A	1.85	15.10
Chiron (CHIR:Nasdaq)	Buy	A2B	0.54	38.83
Qualcomm (QCOM:Nasdaq)	Buy	B1A	1.09	33.06
Citrix Systems (CTXS:Nasdaq)	Buy	B2A	1.26	14.36
Biomet (BMET:Nasdaq)	Buy	B2B	1.17	30.22
Oracle (ORCL:Nasdaq	Buy	B2B	0.99	11.66
Gilead Sciences (GILD:Nasdaq)	Buy	B2B	0.23	42.09
Apollo Group (APOL:Nasdaq)	Sell	C4C	0.61	53.04
USA Interactive (USAI:Nasdaq)	Sell	D4C	0.22	27.23
Atmel (ATML:Nasdaq)	Sell	D4D	-13.01	1.84
Broadcom (BRCM:Nasdaq)	Sell	D5D	-14.96	13.41
Source: Valu-Trac, MSN

Now here are buys and avoids of the Dow Jones Industrials. (No Dow 30 stocks are rated sell at the moment.)

Dow Industrials -- Valu-Trac Buys and Sells
Company	Signal	Condition	IVY	April 14, 2003 Close
Merck (MRK:NYSE)	Buy	A2A	3.53	$56.67
Eastman Kodak (EK:NYSE)	Buy	A2A	10.76	31.86
General Electric (GE:NYSE)	Buy	B2A	3.69	27.76
Citigroup (C:NYSE)	Avoid	C2C	2.16	38.43
ExxonMobil (XOM:NYSE)	Avoid	C2C	3.23	34.87
American Express (AXP:NYSE)	Avoid	C3C	2.18	35.61
Johnson & Johnson (JNJ:NYSE)	Avoid	C4A	2.23	57.78
United Technologies (UTX:NYSE)	Avoid	C4A	3.33	62.45
AT&T (T:NYSE)	Avoid	C4A	5.58	14.05
International Paper (IP:NYSE)	Avoid	C4B	4.21	33.93
DuPont (DD:NYSE)	Avoid	C4B	4.45	40.30
Honeywell (HON:NYSE)	Avoid	C4B	2.68	22.37
3M (MMM:NYSE)	Avoid	D4B	1.90	133.24
Source: Valu-Trac, MSN

Fine Print

To read learn more about Valu-Trac and read its in-depth monthly updates on world intrinsic value yields, visit the corporate Web site. Here's a direct link to a PDF of the April report.