Stink-O-Meter
The Stink-O-Meter(SOM) is a device that searches the web and uses information providers for specific data points and then uses those data points to determine certain value and technical indicators. Using the information it then deduces the fair market value of a stock and provides technical analysis. It uses formulas created and used by Klein Pavlis and Peasley Financial, Inc. developed over years of study by Jerry Klein, the founder of our firm.
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How to Use the Stink-O-Meter
To look up a security simply type in the appropriate ticker symbol in the top left box and click on the “Go” button. If the symbol is valid, the SOM will gather the appropriate data and display it.
A new feature of the SOM is the Watchlist. To register for the watchlist simply log on and click on the "Register for Watchlist" link. Register using your user name and password. Once you do this you will be able to access your watchlist by simply logging in on future sessions. To add a stock to your watchlist, look up the stock on the SOM and click on the “Add to watchlist” link at the bottom of the page. To access the watchlist simply click on the “My Watchlist” link at the top of the SOM page. To delete a stock from your watchlist click on the “X” in the far right column. To return to the SOM click on the “Home” link at the top of the page. You are limited to 20 stocks at one time on your watchlist.
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Explanation of Each Category
Each category for all sections of the SOM provides a score. The scoring ranges from 1 to 5 where 5 is the best. The best way to use the SOM is to look for stocks that are moving up in their scoring in all categories. It is not always wise to buy only 5 rated stocks as those will be the ones that have reached a high score and now must maintain that score. It is possible and in fact not unusual for a stock to keep reaching new price highs but the risk of that stock increases as it goes up. The SOM allows unlimited use so that you can check the stocks you are watching as often as you like. Look for rising stocks.
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Fundamental Analysis
This category is broken down into five parts. The first is EARNINGS YIELD (EY). In using the EY you should relate it to the yield of a riskless investment such as the 10 year treasury bond. At Klein Pavlis & Peasley we like to see an EY of at 150% or more than the dividend yield of the 10 year treasury. Some people use other riskless investments to measure the EY against but we like the 10 year treasury.
Since the yield on the treasury changes, so too does your minimum for the EY of a company. For instance, if the yield on a 10 year treasury is 5% then for this field in the SOM you will want 7.5% or higher.
Why is the EY important and why do we want it to be 150% or higher than the yield of the 10 year treasury? Buying stocks is risky. If you are going to by a risky investment you should be rewarded for the risk. If you can buy a riskless investment and earn the same amount as a risky investment then, of course, you would take the riskless investment. The EY is a way to measure your risk taking.
The next category is RETURN ON EQUITY (ROE). The ROE measures the profitability of a company, its return on its investment. In general terms we want to see 17% or higher for this number. Depending on the industry you may want a higher or may accept a lower number but in general terms 17% is a good ROE figure.
Down from ROE is the VALUATION computation. This is a mathematical construct which determines the fair market value of the stock. It is in general a conservative number. It uses average five year price to earnings ratios and the future earnings per share estimates, along with other financial performance variables. Since it is dealing with both past performance numbers and future estimates the valuation is only a guestimate. We give you a percentage upside figure. If the stock is overvalued the SOM will tell you how much in percentage terms it is overvalued by expressing that number with a negative sign. If the stock is undervalued then the percentage is expressed with a positive number.
Next is PRICE TO BOOK VALUE. This is a deep value metric that can help determine if you are looking at a growth stock or value stock. Generally value stocks trade at less than 2X book value. Growth stocks generally trade at higher price to book values. Book value by definition is the value that a company is worth if it liquidated all its assets and paid off all liabilities.
The AVERAGE FUNDAMENTAL SCORE is a compilation of the other four categories.
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Technical Analysis
There are three categories in this group, the first is LONG TERM. Technical analysis is nothing more than looking at a chart. Many chartists use moving averages to smooth out the volatile movement of a stock to determine trends. The LONG TERM technical analysis is nothing more than a look at the stock price and its relationship to the 200 day moving average. In an ideal world you would like the stock to be above the 200 day moving average and if it is you will get a BUY signal on the SOM.
The SHORT TERM signal looks at shorter term moving averages. The SOM uses the 20, 50 and 200 day moving average as its BUY HOLD or SELL signal.
Both the long term and short term scoring of 1 to 5 on the SOM uses mathematical formulas as the stock price moves up and down in relationship to the moving averages. If you see a 5 as the long term and short term score this stock is in a strong up trend. In using the technical analysis system in the SOM look for stocks that are moving up.
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Stability Analysis
There are three parts to this section. The MARKET CAP section tells you the size of the company you are studying. A small cap company is under one billion dollars. Between one and ten billion is a mid cap company and over ten billion is a large cap stock. The scoring in this category is not nearly as important as the other two. PRICE is nothing more than the current stock price and the AVERAGE DAILY VOLUME is the number of shares normally traded in a day for the stock. In general the larger cap stocks are considered safer yet the smaller cap stocks have the ability to accelerate their growth. Stocks with a price of over $10.00 per share can have mutual fund sponsorship whereas anything less than that and the mutual funds tend to stay away. Mutual fund sponsorship is needed to push stock prices higher. The average daily volume is important to know so that you will be able to sell the stock when the time comes. This is not usually a problem for the individual investor but if there is mutual fund sponsorship in a stock, and they decide to sell, the volume of shares traded becomes very important. Mutual funds and other institutional investors push stock prices and low volume stocks get pushed up and down a lot faster than higher volume stocks.
At the top of the SOM under the name of the company you are studying you will see a link to ‘Earnings Estimate’. In fact, to the left and right of the company name you will see four more links. Two on the left and two on the right.
First the ‘Earnings Estimate’ link will take you to a web site that will give you details of the current and projected earnings of the company. The ‘Chart 1’ and ‘Chart 2’ will take you to two different charting web sites and the ‘Profile 1’ and ‘Profile 2’ will take you to web sites that will give you more fundamental analysis and other facts about the company you are studying.
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Disclaimer
Klein Pavlis & Peasley Financial, Inc., a registered investment advisor, provides these tools for informational purposes only and you should not construe any information provided as an offer to buy or sell a particular security or a solicitation or an offer to buy or sell a particular security. None of the information is to be construed as advice. You must do your own research. The information provided has been obtained from sources believed to be reliable but the accuracy of the information cannot be guaranteed.
Copyright 2005 Klein Pavlis Peasley Financial
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