NEW YORK (
) -- Okay, now that you're read
, let's get started identifying some stocks. Go to the Reports tab in the Ratings Research Center; a screener will pop up with tabs for Stocks, ETFs and Funds.
Let's stick with stocks for now, because the other investment types have screeners with similar functionality. We won't go through all the permutations possible today. We just want to get you started.
Stay tuned to the "Analyst Insight" section of this mini-site for more helpful "How to" guides.
If you just want to see the Ratings assessment of a particular stock, punch in the ticker like "C" for
or "AAPL" for
to the "Ticker" box, and either hit Enter or "Find Equities." This will bring up your stock in the results pane. If you click on that stock's entry in the results pane, you'll be transported to the stock's Summary page.
Here you'll find some of the main pieces of information we want you to focus on, including the stock's overall Rating (letter grade) and Recommendation (Buy, Hold or Sell). As well, you'll see some general information about the stock and company, such as the industry it belongs to, its market cap, trading volume and a chart that shows what our Rating for the selected stock has been over the past two years.
If the stock is rated Buy, you'll also see a price target. This is a 12-month forward target that will change over time along with the stock's price change. As the stock moves up, you'll notice that the target is likely to move up as well, although not necessarily in proportion with the magnitude of the stock price move. Vice versa for stocks moving down. We'll cover this issue in future missives.
On the next tab, "Rating Detail," you'll see the major factors that, when combined with each other, make up the overall Rating. Our major factors are called Growth, Total Return, Efficiency, Price Volatility, Solvency, and Income. Please see our earlier introduction piece for more color on the individual factors. You can search for additional stocks using this screener. And depending on what type of investor you are, magnifying some of our major factors and dimming others is likely to yield stocks that are to your individual taste.
If you are a Growth investor, you'd probably like to see stocks for which the Growth factor is either high (for more steady growth names) or low (for cyclical stocks you feel are near the bottom of their earnings cycles). Further analysis you should perform is in the area of future profit prospects. You can use analyst consensus estimates for this, or create your own forecast models.
If you're more interested in value stocks, you likely already have a list of candidates with low valuation (price-to-earnings, price-to-book, etc.) characteristics. However, we would urge you, as a value investor, to seek out further information about the stock's (and in turn, the company's) Efficiency factor, or to look for stocks with high marks on our Income factor. For traditional value investors, these factors may be of crucial importance.
Factor scores that our model's original creators (rather risk-averse, yet growth-seeking investors) stressed in building the framework for what has become the Ratings model are in the Solvency and Income factors. Dividend payments, growth of those payments, as well as the dividend yield level, are all important to note for many investors. During market periods such as the present one - where the market overall seems at least temporarily directionless - holding dividend-paying stocks can be a great alternative to trying one's luck in the bond market, but with some very important differences.
While a bond's coupon payments are fixed in monetary terms before the bond is even put to market, dividends are always paid at the discretion of a firm's management. We score stocks based on their historical dividend payments because those are far more informative than what one might speculate about future payments, insofar as statistical predictions go. As we found during the market swoon of 2008-2009, however, companies can reduce or cut their dividends out at will. If you are investing purely on anticipated dividends, we suggest you perform analyses that yield results based on anticipated earnings growth, financial stability (which you can always use our mode for), and information about interest payments on debt.
As for the stock price-related factors, it bears noting that high volatility, although not good for the blood pressure, can indeed be a good indicator for stocks. Remember, if volatility rises, it can be because the stock is rising more quickly than had been its trend, so that's a good thing. Typically, though, we would recommend against high volatility levels for more long-term oriented investors, unless the volatility of one of your portfolio stocks is offset by the volatility of other holdings.
More on portfolio diversification in future missives as well.
Amping up the Total Return factor in your search will yield those stocks that display solid performance in terms of price and dividend payments (if applicable). Momentum investors may want to monitor new entries to the top echelons of this factor score, as it will yield stocks where performance is above both risk-free alternatives and the market as a whole.
Use these individual factors to guide our screener. We are confident that the results pane will contain many names that interest you. Once you've identified good candidates, the rest is up to you. Remember to keep in mind both the near- and longer-term prospects of the company's financial fundamentals, and do as much due diligence as you can. We'll have more articles soon on how to use the ETF and fund screeners to find the best funds for you.
-- Reported by Don Lucek in Boston, MA.
Don Lucek, equity research manager, joined TheStreet.com Ratings after working as a buy-side equity analyst with Boston Private Value Investors and as a fundamental equity analyst with DE Investment Research. Prior to that, Don gained experience in credit analysis and international business management, working in the financial services sector. He earned his Bachelor's degree in Economics at Boston College, and received his International MBA degree from the HEC School of Management in Paris. Don is a Level III candidate in the CFA Program.