"MT STOCK BOX" A Users Guide

Transcription

1 "MT STOCK BOX" A Users Guide

2 Here is an explanation of the Marcus Today research template called a STOCK BOX. Hope you like it. It is designed to give you a concise snapshot of Marcus s view on a stock as well as a quick technical and fundamental summary. Generally speaking we will produce a STOCK BOX on any stock that is topical and of interest. They are published in the Newsletter in the STOCK BOX section and then retained and updated in the MT DATABASE which you can access when on the website using the Database Search as shown. The STOCK BOX comes in two parts. The top half contains our view and the bottom contains the numbers. This example is Myer (MYR): Most of the STOCK BOX is self explanatory. Some of the features include: The top box was designed to quickly tell Marcus Today Members what Marcus thinks of a stock. We generally categorise stocks (shown in the MT Category box) as: QUALITY STOCKS or NOT based on the sustainability of ROE, earnings and balance sheet items. INVESTMENTS Stocks you can attempt to Set & Forget (but always with an eye on the share price trend). These stocks are candidates for possible inclusion in our Portfolios. TRADING STOCKS Stocks that you cannot Set & Forget generally stocks that have volatiule or cyclical earnings. BHP and RIO are not investments for instance, we consider them quality trading stocks. They are all candidates for our Trading Ideas section. AN AVOID Stocks we don t have an interest in or that fail basic quality criteria. Note the date under my comment. This is when the box was done. It is like broker research, it all has a date on it, this is the same. Report - This box tells you if there was an announcement on the day the STOCK BOX was produced it has little relevance later. The SCORES are a unique Marcus Today visual snapshot on how a stock rates on 12 different Criteria. The SCORES are done manually (brain engaged) not automatically and are our opinion - so we take into account all factors and use our experience to rate a stock. We rate stocks 1 (good), 2 (middle) or 3 (worst) and these scores produce a tick (1), cross (3) or dash (2). The scores will tell you the story. For instance, this stock is a quality trading stock with ROE flat or rising but not dazzling. The PE isn t expensive or cheap relative to history and is not overpriced versus its intrinsic value estimate. Otherwise it is middle of the road on ROE and PE but has a high Yield and average earnings growth. The sector rating in this case is a 2.which means it is not bad and not good. I think the sector score is one of the most important. It tells you whether the stock is swimming with the tide or against it and generally the tide prevails. There aren t that many good sectors so a sector score of 1 helps a lot.

3 The factors include: Quality Quality of the company. Size goes into this as well as management, history, longevity, balance sheet. ROE Generally we view an ROE above 20% as good and below 5% as the worst rating. But it depends a bit on the nature of the company. It s our view. ROE Trend A tick means ROE is trending up or stable (stable is good), a cross is falling or negative. Gearing A tick is low or cash, a cross is high. PE We look at PE not as being high or low but as being high or low compared to its own history. So it is a PE rating is a measure of the PE relative to the history. We use the VWAP price each year against earnings that year to calculate the historic PEs. The banks for instance may be cheaper than the market but could get a cross because they are at a high PE relative to their own history. PER This is the PE relative to the sector. So a PER of 110 means the stock is trading at a 10% premium to the sector average and a PER of 80 means it is at a 20% PE discount to the sector average. In this way you can see for instance which of the 4 major banks is the cheapest or most expensive relative to the others. Yield We look at size and quality. A tick is an income stock. A cross is a low or low quality (unsustainable) yield. A dash is sort of OK, there are lots of those (average yields). Sector rating This is an important predictive ranking from us. Are they in a growing sector (Tick) or a declining sector (Cross)? This is the sort of factor that is an important prediction for the trend of profits and the share price which may not be in the consensus. As I say, it s a gauge of whether a stock is swimming with the tide (a sector with a good driver) or against it. Growth Growth in the industry and earnings. A tick is growing and sustainable. A cross is declining or unreliable earnings. Value A tick is undervalued. A cross is overvalued. We use intrinsic value versus price as the main indicator. The basic idea is that you can get a quick visual on a stock from the scores table. Each value is put in here manually by us every time we assess a company. Humans involved. OUR VIEW This box gives you our view. It speaks for itself. This is our fundamental value add. It will generally include a bit of descriptive stuff but is designed to give you a very clear snapshot of what we think. It is updated every time we address a stock in the STOCK BOX section. TECHNICAL This section snapshots a few technical indicators and a comment. The Short Term and Long Term comments tell you if MACD is in uptrend or not on a daily and weekly basis. The next number is the value of the 13 day exponential moving average showing if it is above or below the current share price. Blue means its below the current share price which suggests an uptrend and Pink (as here) means the 13 day EMA is above the share price which suggests the price has turned down in the short term. We show five EMAs (exponential moving averages) that cover the standard technical periods of 13 days, 26 days, 12 weeks (60 days), 26 weeks (130 days) and a 200 day (40 weeks). When you have 5 together you can see a stock that is in long term uptrend (blue long term EMAs) but falling in the short term (better go and have a look) or in long term downtrend (pink boxes for the long term EMAs) but rising in the short term (possible trend change). It is a great visual aid.

4 Also in the technical section is the RSI and ATR explanations below: RSI = Relative strength index - Basically it is a number that suggests if a stock is overbought (number over 70) or oversold (number under 30). Stocks can remain oversold or overbought for long periods. RSI only gives you a trading signal when the 30 level is crossed going up (Buy) or the 70 level crossed going down (Sell). So as a stock falls from over 70 to below 70 it is a sell signal. As it crosses from under 30 to over 30 it is a BUY signal. Though you generally wouldn't use RSI as an instruction in isolation...combined with other technical indicators it might prompt you to trade. The RSI will be pink in the box if it is over 70 and blue if it is under 30. ATR = Average True Range. ATR is a technical definition but let me simplify it by suggesting (slightly incorrectly) that it states the average range of movement in a stock in cents over the last 14 days (daily ATR) or 14 weeks (weekly ATR). In other words it is a measure of how far a stock price generally moves during a day on average. You can then relate that to the current share price by expressing the ATR as a % of the price and in so doing see if a stock is volatile or not compared to other stocks. The average true range is around 3% on a daily basis and 6.4% on a weekly basis. That means that in an average week it will move 6.4% from top to bottom. So a high ATR suggests a riskier stock. A low ATR suggest a safer stock. You will see then that Telstra (a relatively low volatility stock) has a daily ATR of just 1.4% of the price and a weekly ATR of just 3.2% of the price (it only moves 3.2% from top to bottom in an average week). So this measure tells you if you are dealing with a risky or low volatility stock. The second part of the STOCK BOX comes in three pieces the first is a history combined with two or three years of forecasts: Trend in ROE We are rather amazed sometimes that brokers tell clients that a stock is high ROE implying that the stock is therefore good or safe. But when BHP was on an ROE of 36.7% in 2011 it was going to fall to 28.3% in 2012 then 18% in the next two years and the share price went from $45 to $30 in a year. The point being ROE is a bit irrelevant because it is the TREND IN ROE that drives the share price. We provide you with that, with the historic and forecast ROE numbers so you can see the trend in ROE. It is far more important than the level of ROE.

5 Intrinsic values Our templates now include our own intrinsic value calculations past and future. When you realise they are derived from earnings/npat forecasts and that you have to input an RRR (your required rate of return) to do the calculation and that this is very subjective (unscientific) but has a huge impact on the resulting IV you begin to realise how rubbery IV calculations are. They are not the gospel they are just a guesstimate. The bottom line is that they are only ever an approximation that might tell you whether a stock is overvalued or undervalued but they are not scientific, accurate, precise, there is a wide margin of error depending on your assumptions. You might only react if there is a large under or overvaluation the actual number is highly variable and is not to be seen as accurate or that useful despite what the value investors will tell you. Basically when you have done a few hundred of them you realise that they require faith and that s something most of us can t afford. They also tend to make rubbish stocks look cheap and quality stocks look expensive. The major flaws are that the RRR assumption is a guess and that the future IV calculations rely on forecasts which are also subject to change. Ultimately getting stocks right boils down to the same thing - whether the market has got the forecasts right and spotting when they haven t. That doesn t come from pawing over existing forecasts or past numbers, they just tell you why the price is where it is now. OTHER POINTS There is a lot of other data both historic and forecast in the STOCK BOX - see the template. It is pretty self-explanatory. The idea is that you can see the trend in earnings and dividends and any other number with four years history and three years of forecasts. Rank - Where the stock ranks in the market by market capitalisation. CBA is TOP 1, BHP is TOP 2, and Webjet is 287. Our forecasts come from Thomson Reuters Consensus numbers. I know you think a lot of the software and websites you subscribe to make their own forecasts but they don t. Truth is you will find almost every other service in this space uses the same basic data and forecasts they may not declare it because they want to give you the impression they have a lot of genius analysts making judgements but very few apart from major brokers do and even then...they're often tainted with corporate purpose! Some products have analysts but their job is to collate the consensus forecasts not analyse companies. Some products do take the P&L and Balance sheet consensus data and fiddle about with it a bit to make the earnings or NPAT numbers cleaner but the base forecasts are coming from the same place (Thomson Reuters or Bloomberg). Some use website like Yahoo! or Google but those websites get their numbers from Reuters or Bloomberg as well. Some interestingly manage to provide 3 or 4 or 5 years of forecasts out of two years of consensus forecasts. There is little value in it because they are using an algorithm to simply extend the trend of the last few years for another year. It s not a forecast, it s an assumption based on the past and takes no account of the fact that it might change the implication from forecasts is that some analyst genius is assessing a company on your behalf. More like some excel formula is misleading you by projecting the future from the past which may change. RIGHT HAND SECTION This box provides you with some historic averages. The ROE average is for the last four years. It also includes the ROA (Return on assets) and the NTA (Net tangible assets) and the highest and lowest PEs in the last four years along with the average PE of the last 4 years. We also gross the yield up to include franking. We also show the average SECTOR PE so you can see if a stock is cheap or expensive relative to the sector. We also show how much debt and cash the company has and what the gearing level is. We then show the price versus the intrinsic value calculation (so a stock trading at twice its IV is 100% overvalued). We also show it compared to the average of consensus intrinsic values. Then we show the consensus recommendation and how many brokers have recommendations on the database (a Thomson Reuters number) and their consensus target price and whether it is over or undervalued against that.

6 Finally the dividend and performance numbers This tells you whether the stock is cum dividend and by how much and if not when it is next likely to go ex-dividend based on last year s ex-dividend date. The Performance numbers tell you the all-time high and low and the performance of the share price over the last week, month and year and then the total shareholder return (includes dividends) for the year to date (YTD), year, 3 years and 5 years. SUGGESTIONS If you have anything to say about the new format and how it can be improved then please us on marcus@marcustoday.com.au That s it for the MARCUS TODAY STOCK BOX - Enjoy!