Educational Programming Video
The Value Line Investment Survey
Program 4: Using Individual Company Pages/Timeliness
In this session we will discuss the information contained in the individual company pages in The Value Line Investment Survey. Our one-page reports on individual stocks are in the section called Ratings & Reports, and this is the place that most investors spend most of their time.
Before moving ahead, it is very important for everyone to know that there is no single right or correct way to use a Value Line page. Some readers consider certain features to be very important; others consider other features important. The fact is that there is so much information on each page that you can pick and choose almost any kind of information that is important to you. You can then use that information in ways that are most helpful to you in evaluating stocks.
Generally speaking, there are four things that readers consider most important on a page. The first are the Timeliness, Safety, and Technical ranks that appear in the upper left-hand corner of each page. The second is the 3- to 5-year financial and stock price projections shown in several places in each report. The third is the statistical data appearing in the center of the report. And the fourth is the analyst's commentary and text toward the bottom of each report.
Today, I am going to discuss Timeliness.
For more than 35 years, Value Line has been ranking stocks for Timeliness, which is a measure of the relative attractiveness of one stock for the coming six to 12 months compared to all the other approximately 1,700 stocks in Value Line. The Timeliness Ranking System is proprietary and is one of the reasons why Value Line is so well known. Ranks go from 1 (Highest) to 5 (Lowest).
Stocks ranked 1 are likely to perform best relative to the rest of the stocks in the Value Line universe. Stocks ranked 2 are likely to be above-average performers. Stocks ranked 3 should move about in line with other stocks in the Value Line universe. Stocks ranked 4 and 5 are likely to underperform other Value Line stocks.
At any one time there are 100 stocks ranked 1, 300 ranked 2, approximately 900 ranked 3, 300 ranked 4, and 100 ranked 5.
The results of the Timeliness ranks are published twice a year (in January and July) in The Value Line Investment Survey, and the performance has been outstanding. In fact, Mark Hulbert, a columnist for Forbes Magazine, and The New York Times has written that, after allowing for risk, the number-one performing investment newsletter over the past 20 years is The Value Line Investment Survey. By his calculation, Value Line's #1 ranked stocks increased at an annual rate of 17.6% over the 20-year period.
The Timeliness Ranking System is primarily growth-oriented, favoring companies whose earnings are growing rapidly and exceeding analysts' expectations, and whose stock prices have performed better than the market averages. The major variables are: a 10-year history (if available) of relative earnings and stock prices, stock price momentum, earnings momentum, earnings surprise, and price volatility. Companies whose earnings and stock prices have grown faster than the average company in the Value Line universe tend to be the ones ranked 1 and 2.
It is probably worth noting here that not all stocks have Timeliness ranks. One reason is that unless a stock has a minimum of two years of historical data, a Timeliness rank cannot be calculated. That's the reason that new stocks or those that have been recently spun off from other companies don't have ranks. Another is that Value Line will normally "suspend" the rank of a stock that is the subject of a large merger or acquisition offer.
It is also worth noting that stocks ranked 1 tend to have smaller-than-average capitalizations than the overall Value Line universe. They are often, but not always, characterized as "small capitalization growth stocks." More conservative investors may want to select stocks with a high Safety rank, which I will discuss in the next session, or with above average 3- to 5-year price appreciation potential, which I will also discuss in the future.
Value Line's quantitative research resulted in the creation of the Timeliness Ranking System in 1965, and the results, as mentioned earlier, have been outstanding.
The company has also done a great deal of other statistical research, and in our next session, we will discuss how investors can use our Safety and Technical ranks, as well as Betas, in making investment decisions.
I look forward to talking to you about those subjects next time.
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