Data, Data, Everywhere

February 17, 2011

As I have mentioned a time or three, I love numbers. I can spend hours studying a spreadsheet full of numbers trying to find the magic combination or formula that will produce guaranteed winners in the stock market.

I realize most investors don’t have the time or desire to create their own database and stock rating system, but I think I can help with a few quick ideas.

I have become quite familiar with data and ratings provided by Investor’s Business Daily (IBD), Standard & Poor’s (S&P), Value Line and Zacks. All of these investment services, which are available for an annual fee, provide reliable data plus buy and sell ratings for many companies. Do you want to find more information on any stock? All of these services, and others, some of which are free like MSN, offer forecasts, ratings, data and more.  Here is a quick summary of what the four fee-based services offer.

DDD 2:11IBD offers the Investor’s Business Daily financial newspaper, charts, ratings, downloadable data and online screening. The company creates several different ratings, and I like the SmartSelect Composite Rating, which takes into consideration earnings and stock price momentum, group momentum and other factors. The Composite Rating is scaled from 1 to 99, with 99 the best Rating. The highest rated stocks are likely to be high risk.

Standard & Poor’s, founded in 1860, is the oldest and probably the most comprehensive investment service for common stocks. The S&P 5-Star rating system ranks stocks according to their total return potential compared to the S&P 500 Index, an index of 500 of the largest companies listed on U.S. stock exchanges. The ratings range from one star to five stars with five stars indicating a strong buy. Stocks rated “strong buy” tend to be conservative. S&P stock reports are available for free on many brokerage sites for account holders.

Value Line has been around for 80 years and offers one-page summaries for individual stocks as well as electronic data services. The Value Line Timeliness Rank measures probable price performance during the next six to 12 months, relative to the other 1,700 stocks covered in their primary service. The top rank of one (ranked one to five) is assigned to the top 100 stocks. Value Line’s top ranked stocks have risen 26.7% per year during the past 23 years. Stocks with strong buy ratings have a tendency to be moderate risk.

Zacks Investment Research was started in 1978 and offers stock reports, buy and sell ratings, and online screening. The Zacks Rank is based on earnings estimate revisions by research analysts throughout the industry. The Rank is divided into numbers one to five with one signaling a strong buy and five, signaling a strong sell. Zacks’ top-ranked stocks have risen 28.1% per year during the past 23 years. Stocks with strong buy ratings are likely to be high risk.

I have found it helpful to find stocks that have high ratings in at least two of these research services. If I am searching for low risk stocks, I look for stocks that have high Standard & Poor’s Stars ratings and high Value Line Timeliness ratings. If, on the other hand, I am seeking stocks with some zip, I select stocks with high IBD and Zacks ratings.

Later today I’ll show you three stocks I selected as good investments based on some of this criteria.

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