|
TranceAddict Investors Club @ Marketocracy (pg. 49)
|
View this Thread in Original format
| Krypton |
Check out this wikipedia article I wrote... High yield stocks
http://en.wikipedia.org/wiki/High_yield_stocks
| quote: | High yield stocks
A high yield stock is a stock whose dividend yield is higher than the yield of any benchmark average such as the 10-Year US Treasury Note. The classification of a high yield stock is relative to the criteria of any given analyst. Some analysts may consider a 2% dividend yield to be high, while other may consider 2% to be low. There is no set standard for judging whether a dividend yield is high or low. Many analysts do however use indicators such as the previously mentioned comparison between the stock's dividend yield and the 10-Year US Treasury Note.
A high dividend yield indicates undervaluation of the stock because the stock's dividend is high relative to the stock price. High dividend yields are a particularly sought after by income and value investors. High yield stocks tend to outperform low yield and no yield stocks during bear markets because many investors consider dividend paying stocks to be less risky. |
|
|
|
| Krypton |
Check out these easy strategies...
| quote: | Dogs of the Dow
The Dogs of the Dow strategy is a well known simple strategy which incorporates high dividend yields. The strategy dictates that the investor compile a list of the 10 highest dividend yielding stocks from the Dow Jones Industrial Average and buying an equal position in all 10 at the beginning of each year. At the end of each year, the investor finds the 10 highest dividend yield stocks again, and sells any stocks which are not still on the list. The Dogs of the Dow made a compounded annual return of 18% from 1975 - 1999 outperforming the market by 3%. This would make $10,000 turn into $625,000 in 25 years. [1]
The Dow 5
The Dow 5 strategy is a variation of the Dogs of the Dow strategy. This strategy dictates the investor compile a list of the 10 highest dividend yielding stocks from the Dow Jones Industrial Average, and buy the 5 lowest priced of those 10 stocks at the beginning of each year. At the end of every year, the investor remakes the list, and sells any stocks which are not on the new list. This strategy has made an annual return of 19.4% from 1975 - 1999. This would make $10,000 turn into $840,000 in 25 years. [2]
Foolish 4
The Foolish 4 strategy is a strategy popularized on the investing website The Motley Fool. This strategy dictates that the investor take the 30 Dow Jones Industrial stocks and divide the dividend yield of each one by the stock price squared...
Dividend Yield ÷ Stock Price²
Take the 5 stocks with the highest ratio and drop the stock with the highest ratio. The investor is then to invest in the last 4 stocks called the "Foolish Four". This strategy has returned 24.5% annually from 1975 - 1999 which would make $10,000 into $2.4 million.[3] |
|
|
|
| Krypton |
Well, here is my periodic stock analysis of my watchlist and stock picks requested by others. The only one here to ask for an analysis was Shakka. The list is ranked in order of the highest rated stocks by my intrinsic strength measurements. Hope this helps you guys...
Stock - INTRINSIC STRENGTH - GRADE - RATING
EXM - 95.19% - A - Strong Buy
NE - 93.90% - A - Strong Buy
ESV - 92.48% - A - Strong Buy
MSFT - 89.33% - A - Strong Buy
TBSI - 87.05% - A - Strong Buy
FCX - 86.05% - A - Strong Buy
DRYS - 85.14% - A - Strong Buy
XOM - 85.00% - A - Strong Buy
WHQ - 84.14% - B - Buy
APA - 83.93% - B - Buy
COH - 83.60% - B - Buy
TRMD - 83.29% - B - Buy
TKC - 83.05% - B - Buy
PBR - 83.00% - B - Buy
GOOG - 82.71% - B - Buy
UNT - 82.67% - B - Buy
BRGYY - 82.39% - B - Buy
EPAX - 82.38% - B - Buy
BOLT - 82.05% - B - Buy
ESEA - 81.95% - B - Buy
PTEN - 81.57% - B - Buy
FREE - 80.95% - B - Buy
LCAV - 80.86% - B - Buy
MBT - 80.57% - B - Buy
GRP - 80.52% - B - Buy
PCU - 80.19% - B - Buy
XTO - 79.29% - B - Buy
DSX - 79.26% - B - Buy
FRO - 78.90% - B -Buy
ATW - 78.72% - B - Buy
EGY - 78.71% - B - Buy
TNP - 78.67% - B - Buy
ECA - 78.30% - B - Buy
VIP - 77.90% - B - Buy
SU - 77.52% - B - Buy
HCC - 76.81% - B - Buy
BP - 76.81% - B - Buy
BHP - 76.26% - B - Buy
MTL - 76.24% B - Buy
GPOR - 75.48% - B - Buy
TMX - 75.43% - B - Buy
INTC - 74.95% - B - Buy
BIDU - 74.81% - B - Buy
POT - 73.81% - B - Buy
BXP - 73.75% - B - Buy
ABP - 70.30% - B - Buy
RTN - 67.14% - C - Hold
JPM - 66.57% - C - Hold
SBUX - 65.95% - C - Hold
PFE - 65.90% - C - Hold
SFL - 64.62% - C - Hold
ALL - 61.14% - C - Hold
TTM - 61.00% - C - Hold
DOW - 60.48% - C - Hold
OSG - 60.24% - C - Hold
CAG - 58.14% - D - Sell
USU - 57.38% - D - Sell
SNE - 53.10% - D - Sell
CBRL - 51.52% - D - Sell
GE - 51.33% - D - Sell
MCD - 49.90% - D - Sell
RCI - 47.24% - D - Sell
ZLC - 47.10% - D - Sell
NI - 33.10% - F - Strong Sell
DISCA - 23.86% - F - Strong Sell |
|
|
| Shakka |
| Cool. They came out about where I'd think, though I am a bit surprised to see JPM so far down the list. Well maybe more surprised than I should be. Thanks. |
|
|
| Krypton |
| quote: | Originally posted by Shakka
Cool. They came out about where I'd think, though I am a bit surprised to see JPM so far down the list. Well maybe more surprised than I should be. Thanks. |
No problem...;) |
|
|
| Krypton |
Risk / Valuation Study of my Quant Model...
Well, in an investing forum (HERE), I stated that I believe my quantitative model could discern valuation as well as risk in stocks, ultimately leading to above average alpha, which should be the goal of any investor. Alpha, if you don't know, is a measure of how much returns your portfolio gets compared to the risk taken. The higher the alpha, the more your returns are compared to the risk you took.
Below is the test I promised I would do. It takes the top 5 highest rated stocks on my most recent analysis list, and compares their valuation to the 5 lowest rated stocks on same analysis list. The claim is that my quant model is designed to rank more undervalued stocks higher than those stocks which are lower. So, according to my intrinsic strength ranking, the highest rated stocks should be cheaper than the lowest ranked stocks. Below are the stocks used and their rankings...
5 Highest Ranked...
EXM - 95.19% - A - Strong Buy
NE - 93.90% - A - Strong Buy
ESV - 92.48% - A - Strong Buy
MSFT - 89.33% - A - Strong Buy
TBSI - 87.05% - A - Strong Buy
5 Lowest Ranked...
MCD - 49.90% - D - Sell
RCI - 47.24% - D - Sell
ZLC - 47.10% - D - Sell
NI - 33.10% - F - Strong Sell
DISCA - 23.86% - F - Strong Sell
The standard used to determine valuation is a percentage comparison between the current stock price (as of 4PM, April 7, 2008) and the 52 week high. The lesser the current stock price is from the 52 week high, the more undervalued the stock. So below are the percentages for how far below each stock is below their 52 week highs. The assumption is, the higher the percentage, the more undervalued the stock...
EXM - 63%
NE - 9%
ESV - 4%
MSFT - 22%
TBSI - 52%
MCD - 13%
RCI - 24%
ZLC - 35%
NI - 30%
DISCA - 25%
The top group's average distance below the 52 week high is 30%. The bottom group's average distance below the 52 week high is 25%. The top 5 stocks are more undervalued by 5% than the bottom 5 stocks according to the 52 week high comparison.
So, my assertion, according to this test is correct. My quant model is able to discern valuation in a measurable fashion (as we have just done). How does this improve one's alpha or risk relative to returns? Well, my model does this by indicating the highest quality stocks, while taking into account stock valuation. So the highest ranked stocks are not only high quality, but very likely to also be undervalued. So when one buys undervalued and high quality stocks, the ultimate results is lower risk and higher returns, thus, a higher alpha.
Any questions? |
|
|
| jerZ07002 |
| quote: | Originally posted by Krypton
The lesser the current stock price is from the 52 week high, the more undervalued the stock. So below are the percentages for how far below each stock is below their 52 week highs. The assumption is, the higher the percentage, the more undervalued the stock...
|
i'm not sure that is accurate. this assumes that the 52 week high was not an aberration, and also that the fundamentals since the 52 week high haven't changed. if circumstances have changed since the 52 week high you can't say that it is undervalued based on a historic price.
so would you say that LEH is highly undervalued? LEH is about 50% off from its 52 week high. |
|
|
| jerZ07002 |
| krypton - i was reading your blog about gamma and FS. Have you done a historical study using these measures? if you haven't already done so, you should pick historic prices for randomly selected stocks, and test them for the price they achieved after that time. it seems like you have some good ideas, however, you need some solid support to back those ideas. an easy way is to use past data and test it against more recent data to see if your functions work. you could then write a nice paper on this and potentially become published (which would undoubtedly advance your finance career). |
|
|
| Krypton |
| quote: | Originally posted by jerZ07002
i'm not sure that is accurate. this assumes that the 52 week high was not an aberration, and also that the fundamentals since the 52 week high haven't changed. if circumstances have changed since the 52 week high you can't say that it is undervalued based on a historic price.
so would you say that LEH is highly undervalued? LEH is about 50% off from its 52 week high. |
Think of the 52 week high as the most desirable place for a stock to be at. So the lower the stock is the pinnacle which is the 52 week high, the more it has to go. The more it has to go, the cheaper it is. That is where I get the idea of a 52 week high as a standard for estimating what is an optimum level for a stock price.
| quote: | | krypton - i was reading your blog about gamma and FS. Have you done a historical study using these measures? if you haven't already done so, you should pick historic prices for randomly selected stocks, and test them for the price they achieved after that time. it seems like you have some good ideas, however, you need some solid support to back those ideas. an easy way is to use past data and test it against more recent data to see if your functions work. you could then write a nice paper on this and potentially become published (which would undoubtedly advance your finance career). |
The test is in my sig...;)
I have already written a 100 page thesis on my project. I need to condense it down to probably less than half that. Also, my project is ongoing, so if I write a paper, it'll be obsolete by the time I am finished editing it. But I still have a draft. I just need to get settled on my model. I could really make people a lot of money, but I'm yet to be discovered, so until then, I'm gonna just keep working on my frankenstein...:D |
|
|
| jerZ07002 |
| quote: | Originally posted by Krypton
Think of the 52 week high as the most desirable place for a stock to be at. So the lower the stock is the pinnacle which is the 52 week high, the more it has to go. The more it has to go, the cheaper it is. That is where I get the idea of a 52 week high as a standard for estimating what is an optimum level for a stock price.
|
just because it is the desired place does not mean that it is undervalued because it is not at that price anymore. you should probably re-think this theory because as i said before, historic price is not always an accurate reflection of its potential future value.
As an example, bear stearns 52 week high is 159.36, and it's current price is 10.67. BSC is currently trading at about 93% less than its 52 week high. Under your theory, this stock would be greatly undervalued. This is certainly not true. While the stock may be undervalued, it has nothing to do with its distance from its 52 week high.
The problem with this theory is that it assumes the stock should be valued at the 52 week high. using BSC again, your theory assumes it should be valued at 159.36. that simply isn't anywhere near it's true value. would you agree with that statement? determining whether BCS is undervalued on its 52 week high would be highly inappropriate. |
|
|
| Shakka |
Krypton--FMD FYI (since you were hopefully smart enough not to jump in).
TERI (The Education Resource Institute) filed for Chapter 11 bankruptcy protection last night. TERI guarantees most of the ABS issued by FMD. Now FMD has to take on a lot more credit risk and the quality of their residuals is a much bigger issue. Stock trading around $5 this AM. This company has no reason to exist. |
|
|
| Krypton |
| quote: | Originally posted by jerZ07002
just because it is the desired place does not mean that it is undervalued because it is not at that price anymore. you should probably re-think this theory because as i said before, historic price is not always an accurate reflection of its potential future value.
As an example, bear stearns 52 week high is 159.36, and it's current price is 10.67. BSC is currently trading at about 93% less than its 52 week high. Under your theory, this stock would be greatly undervalued. This is certainly not true. While the stock may be undervalued, it has nothing to do with its distance from its 52 week high.
The problem with this theory is that it assumes the stock should be valued at the 52 week high. using BSC again, your theory assumes it should be valued at 159.36. that simply isn't anywhere near it's true value. would you agree with that statement? determining whether BCS is undervalued on its 52 week high would be highly inappropriate. |
I don't think you understand the concept. It is an assumption based on the idea that most undervalued stocks are far below their 52 week high. Wouldn't you agree? Now BSC may be 93% below its 52 week high, but its fundamentals indicate it is not undervalued. That is why I have done the study on fundamentals, to ensure that my top 5 stocks whose average distance from their 52 week high is 30%, are undervalued.
As you probably know, I have a target price based on 52 week highs and the stock's rating. But you should know that each estimation is based on an assumption. I also don't rely on any one assumption. I really on many assumptions, so that no one assumption influences the final output result too much...
| quote: | Krypton--FMD FYI (since you were hopefully smart enough not to jump in).
TERI (The Education Resource Institute) filed for Chapter 11 bankruptcy protection last night. TERI guarantees most of the ABS issued by FMD. Now FMD has to take on a lot more credit risk and the quality of their residuals is a much bigger issue. Stock trading around $5 this AM. This company has no reason to exist. |
Never pulled the trigger...;)
They are balancing on the edge, but there is still actually a good chance of a resurgence with FMD and TERI, more so than if they just flat out declared bankruptcy and collapsed. Private student loans are going nowhere in my opinion. The government is stuck throwing money away to Iraq and private contractors, so I'm not expecting them to help any college students. I don't need a bloody loan, I need a damn grant. |
|
|
|
|
