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Value Line's Model Portfolios

To illustrate how an investment strategy can meet different goals, Value Line analysts select and maintain three model portfolios, each with a distinctive investment objective. All three portfolios hold 20 stocks.

These portfolios, which are closely monitored and regularly updated, are featured each week in Selection & Opinion along with a brief commentary on changes in the lists or a discussion of one of the companies currently held.

To be considered for Portfolio 1, modeled for the more aggressive investor wanting to emphasize price appreciation rather than income, a stock must have a Timeliness rank of 1 and a Financial Strength rating of at least B+ at the time of purchase. Although the analyst managing the portfolio can sell a holding at any time, either to buy a stock that seems to have a greater potential or to realign the portfolio diversification, any stock whose Timeliness rank falls to 3 or lower is automatically dropped.

Here are some other characteristics of Portfolio 1:

  • The companies have generally had above average earnings records.
  • The companies often have relatively smaller market capitalizations.
  • Few of these stocks pay a dividend and most pay no dividends at all.
  • A number of the stocks in the portfolio have Betas considerably higher than 1, which indicates that they are more volatile than the market as a whole.

Portfolio 2, for the moderate investor, includes stocks that will provide above-average income and whose prices have the potential to increase. Typically, more conservative investors will be most comfortable with a portfolio such as this one.

To be included in the portfolio, a stock must pay a large enough dividend so that its yield ranks in the top half of all stocks tracked in The Value Line Investment Survey. It must also have a Timeliness rank of at least 3 at the time of selection and a Safety rank of 3 or higher. If the Timeliness or Safety rank drops below 3, the stock is automatically dropped from the portfolio.

Here are some distinguishing features of Portfolio 2:

  • The stocks in this portfolio are almost all ranked a (3) average for Timeliness rather than the 1 or 2 typical of other portfolios.
  • The portfolio includes some value stocks, which are stocks with generally lower P/E ratios than the other stocks Value Line tracks in The Value Line Investment Survey
  • With few exceptions, the Betas of the stocks in Portfolio 2 are below—sometimes well below—those in Portfolio 1, which indicates that the stocks generally change in price more slowly than the market in general. (Betas are shown on the Value Line company reports in the upper left corner.)

Portfolio 3 emphasizes stocks with the potential for large 3- to 5-year price increases. It is most appropriate for investors focused on long-term capital gains.

Stocks in this portfolio are those the analysts believe have well-defined growth potential and have Timeliness and Safety rankings of at least 3 at the time they are added to this portfolio.

In addition, you can observe that:

  • This portfolio is more varied than the others in almost every area. The range of prices is the greatest as is the variation in P/Es. There is also a greater mix of stocks paying above-average dividends and those paying no dividends.
  • The portfolio at times includes stocks with no Timeliness rank because of recent restructurings or pending acquisitions.

The investment performance of all three portfolios is published quarterly in the Selection & Opinion.

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