Earnings Per Share (EPS): the total operating EPS for
the stock over the most recent 12 months.
is a measure of risk adjusted performance. (See Jensen's Alpha)
all stocks are ranked on a 1-100 scale according to their
(Jensen's) alpha values, with 100 being the top Jensen's-alpha
percentile (the best).
Earnings Per Share (EPS) Surprise (%): a weighted average
of the firm's recent 6 quarterly EPS surprises, where the
percentage EPS surprise for each given quarter equals the
actual announced EPS divided by the consensus expectations
prior to the announcement minus one, and where the most recent
quarterly EPS surprise is assigned a weight of 6/21, the second
most recent quarter's EPS surprise a weight of 5/21, and so
on. This measure reflects the firm's business growth momentum
over the recent 6 quarters.
Return: a stock's average annual return over the recent
Trading Volume : the stock's average daily trading volume
(in number of shares) over the recent one month.
a systematic risk measure of the stock, as determined by the Capital Asset Pricing Model (CAPM).
A value of 1.0 for a stock's beta means that the stock has the same amount of systematic risk as the overall market.
A value less than one would mean less volatility. ValuEngine uses a 1 month calculation for beta.
CAPM: or Capital Asset Pricing Model describes the
relationship between risk and expected return and asserts
that investors demand higher returns for higher risks. It
also explains how diversification serves to reduce volatility
in a portfolio.
Double: the probability that a given stock will double
over a specified future time horizon.
Trouble (loss): probability that a given stock will lose
money over a specified future time horizon
Rank: This measure serves as an overall attractiveness
measure for each stock, based on both valuation and momentum.
Ideally, an attractive stock should have favorable valuation
(i.e., a high Mispricing Rank) and top momentum. The composite
rank is calculated by taking the sum of Mispricing Rank and
Momentum Rank, and dividing it by 200. With the normalization,
this rank is also on a scale of 1 to 100.
Model Price: a fair-value assessment based on the analyst-consensus
estimate for the future 12-month Earnings Per Share (EPS)
minus one standard deviation of individual analyst forecasts.
Other aspects of the fair-value assessment are identical to
those of Model Price calculation.
|Buy and Trade:
a trading system developed by VE Chief Market Strategist which uses his proprietary technical levels and Good Until Cancelled (GTC) orders to trigger position adjustment.
For longs, investors increase positions when share prices decline and hit "value levels."
When share prices increase to "risky levels," long positions are sold off and profits are booked.
The opposite is true for short positions - investors increase the position when share prices increase
to risky levels and decrease them when they decline to value levels.
the total debt outstanding divided by total market value of
the average daily trading volume (shares) multiplied by the
stock price, over the recent month.
Per Share (EPS) Growth Rank : all stocks in our database
are ranked into 100 percentile groups according to their expected
EPS growth rate. Stocks with an EPS rank of 100 have the highest
expected EPS growth, and so on.
Per Share (EPS) Surprise Rank: all stocks in our database
are ranked into 100 percentile groups according to their Recent
EPS Surprise. The higher a firm's Recent EPS Surprise, the
higher its stock's EPS Surprise Rank (on a 1-100 scale).
Per Share (EPS) Growth Rate: (forecasted Earnings Per Share (EPS) minus actual EPS) divided by actual EPS,
multiplied by 100 (to get the percentage growth rate). ValuEngine uses the past one year (12 months) historical EPS figures
and future one year consensus estimates going forward to calculate EPS Growth Rate.
is a fair value assessment of a stock based on the ValuEngine
Stock Valuation Model. The fair value price indicates what
the price of the stock should be today, according to the ValuEngine
model. It is based on actual Earnings Per Share (EPS) for
the previous 4 quarters, forecasted EPS for the following
4 quarters, and the current 30-Yr Treasury Bond yield. There
are 10 firm-specific and interest-rate-related parameters
each playing a role in the valuation formula (see The Models
for specific parameters).
Earnings Per Share (EPS): analyst consensus forecast for
the firm's operating EPS over the immediate future 12 months,
adjusted using our proprietary EPS forecasting model.
models: click for The VE Forecasting Models.
horizon: the period of future time over which stock or
portfolio performance is being forecasted.
Variables: variables used in forecasting stock and portfolio
returns include, but are not limited to: momentum variables
based on a stock's own history, price persistence, growth
variables, EPS trend variables, book/market, P/E ratio, debt/equity.
Other variables for forecasting include ValuEngine's proprietary
a stock valuation model that says the fair value of a stock
should equal the ratio between the stock's dividend per share
and the difference between the discount rate and the long-term
dividend growth rate. This model assumes that the firm's dividend
will grow at a constant rate forever and that the discount
rate stays the same forever. While unrealistic, this model
does serve to indicate some useful information. First, as
interest rates rise (and hence so does the discount rate),
a stock's value should decline. Second, as the firm's dividend
growth rate increases, so should its stock's fair value. Finally,
it is dividends that investors should ultimately care about,
an implication that recent stock market evidence seems to
see Forecasting horizon.
momentum continuation: a principle proposing that stocks
that have increased in value over the past 6 months to a year
tend to continue appreciating in the following 6 months to
Alpha: a risk-adjusted excess return over the past 12
months, that is, the stock's return minus its beta times the
contemporaneous return on the S&P 500 index.
price reversals: a principle that maintains that stocks
that have increased in value over the past 2 to 4 years tend
to lose value in the next 2 to 4 years.
Ratio: market price divided by book value per share (of
|MOJO: a Suttmeier term for momentum. Some analysts call this "technical momentum."
Rank : all stocks are ranked on a 1-100 scale according
to their market/book ratios (of equity), with 100 being the
lowest market/book ratio.
investors: follow an investment strategy that invests
mostly in stocks with the best performance over the previous
six to twelve months.
Rank: as defined before, it is the relative return
performance of the stock over the recent 12 months. On
a scale of 1 to 100, the higher the momentum rank, the stronger
the stock has performed in the recent 12 months.
percentage estimates of the probability that the return on
a stock or portfolio will meet or exceed a certain target.
The higher the assessed percentage, the more likely the given
condition or event will occur.
Fair Value: a fair-value assessment based on the analyst-consensus
estimate for the 12-month-forward Earnings Per Share plus
one standard deviation of individual analyst forecasts. Other
aspects of the fair-value assessment are identical to those
of Fair Value calculation.
/ Earnings) Ratio : the stock's market price divided by
actual EPS. The reciprocal of it is E/P ratio.
/ Earnings) Ratio Rank : all stocks in our database are
sorted into 100 percentile groups according to their P/E ratio.
Stocks in the top P/E percentile are each assigned a rank
of 1 (the highest P/E stocks), ?K., those in the bottom P/E
percentile are each assigned a rank of 100 (the low P/E stocks,
or, the traditional value stocks).
|Pivot: a pivot can be either a resistance or a support which has been violated
for a given time horizon. Once violated, it may act as a magnet during the time frame specified.
This is a level at which to consider more aggressive position adjustments.
will tell you the expected future value/return, chance of
a double, chance of loss, and the chance of meeting or exceeding
any investment target you may have in mind. With this information,
you can then see whether you need to change or re-shuffle
your portfolio to improve its future prospects.
Optimization is a pure mathematical problem to maximize or minimize a real function by choosing input values from within an allowed set. There are many ways to do optimization. ValuEngine's (VE) approach is commonly called "generate and test". After randomly choosing the component weights for a portfolio, VE calculates the portfolio return and variance. VE may "generate and test" 50,000 times and then the best portfolio option is chosen.
Portfolio optimization requires two main inputs: expected returns and covariance. A covariance matrix is a square matrix that contains covariances between portfolio components. The stock covariances are calculated from the historical prices. It is a pure mathematical process, any one using the same stock historical prices will get the same covariance.
What makes VE different is another input: expected returns. One of the most difficult things to do accurately in finance is to calculate the future expected returns for stocks. The most common method may simply use the past returns for stocks. VE has a proprietary Forecast model, and this is what we use as the input for portfolio optimization. This cannot be replicated by any other firm or researcher as the VE Forecast model is a proprietary model developed and run by the VE research team with great success, since 1999.
the market price for any given stock.
Flow: the market price divided by cash-flow per share.
market price divided by sales per share.
Rank: all stocks on our database are ranked on a 1-100
scale according to their price/sales ratios, with 100 being
the lowest price/sales ratio.
are relative to the entire stock universe & on a 1~100 scale;
the higher ranked, the better
Surprise %: a weighted average of the stock's recent 6
quarterly EPS announcements, where the more recent a quarterly
EPS announcement, the more weight it has on this average EPS
surprise measure. For each announced EPS, the percentage EPS
surprise is determined by the actual EPS minus the pre-announcement
analyst consensus estimate, divided by the latter estimate.
This measure reflects the firm's business growth momentum
over the recent 6 quarters.
best-efforts predictions of a stock's or portfolio's future
performance, where "best-efforts" means using the current
and available information and the "currently known models"
to make a performance prediction. Past performance is never
a guarantee of future return so there is no guarantee that
the forecasts will precisely match what occurs in the future
or what becomes known after the fact. These forecasts summarize
all the predictive information contained in Mispricing, momentum,
size, market ratios, and so on. See also Forecasting
|Risky Level: a risky level is a price at which investors should reduce long holdings on share price strength.
Some analysts call this a "resistance." The opposite is true for a short position.
measures the risk-return tradeoff offered by the stock, and
it is named after the Nobel Prize winner William Sharpe. It
is the stock's average annual return (over the recent 5 years)
divided by its annualized volatility over the same 5 years.
High quality stocks are usually associated with high Sharpe
Rank: all stocks in our database are ranked on a 1-100
scale according to their Sharpe Ratios, with a rank of 100
representing the top 1% Sharpe-Ratio stocks.
price reversals: stocks that have done well in recent
weeks tend to do poorly in the few weeks to come.
refers to market capitalization and is important as it relates
to liquidity, or how easy one can buy or sell a stock.
investors: select stocks based on market capitalization,
such as large-cap funds, mid-cap funds and small-cap funds.
as defined before on a 1-100 scale, the higher the size rank,
the larger the firm's market capitalization.
different ratings of a given stock, each from the perspective
of an investor type. A stock that is attractive to an aggressive
investor may not be attractive to a value investor. It is
based on a proprietary model developed by ValuEngine Inc.
the last trade price compounded by the corresponding return
forecast. For example, suppose IBM's market price is $100
and its forecasted 1-year return is 20%. Then, its forecasted
1-year target price is $120. See Return Forecasts
and Forecasting Models.
Valuation Models: Commonly used and known valuation models
that include the Gordon model, variants of the multi-stage
dividend-discount model, discounted cash-flow models, and
book-value-based residual-income models.
(%): reflects whether a stock is over or undervalued.
The more undervalued the valuation percentage, the more undervalued
the stock, while the more positive the mispricing percentage
the more overvalued the stock. It is recommended that you
impose a valuation lower boundary at -75%. Tests show that
when the mispricing measure is below -75% the ValuEngine model
price may not be reliable.
Rank: all stocks in our database (about 7000 for the U.S.
and 500 for Taiwan) are sorted into 100 percentile groups
according to their mispricing level. Stocks in the bottom
1% mispricing group are each assigned a rank of 100 (the most
undervalued), those in the second bottom group a rank of 99
(the second most undervalued), and the top percentile a rank
of 1 (the most overvalued stocks). Thus, the higher the mispricing
rank, the more undervalued the stock.
follow an investment strategy of selecting stocks based on
their book/market and price/earnings ratios.
|Value Level: a value level is a price at which investors should add to long positions on share price weakness.
Some analysts call this a "support." The opposite is true for a short position.
is a reflection of a stocks movement and should be neither
good nor bad, but day traders like a lot of volatility and
Conservative investors generally like limited volatility.
%: standard deviation of the stock's monthly returns during
the recent three years, converted to annualized terms. This
measure indicates the month-to-month stock price volatility
for the firm.
Rank: all stocks in our database are ranked on a 1-100
scale according to their volatility, with 1 being the most
volatile percentile of stocks.