Industry Valuations as of March 29th 2011

This table has the average equity valuation results for all industries where there was more than one company represented (see Count column).  Other column headings that need explanation are VR for Valuation Return or Risk, RR for Growth, PB for Payback in years, EST/MPEPS is the ratio of estimated EPS vs normalized EPS (MPEPS) and the average Value Line Timeliness Rank.

Alphabetic sort

The same table sorted by Valuation Return/Risk

Sorted by VR

Using Valuation Return/Risk as a proxy for future relative performance, the following characteristics are associated with a positive outlook:  high RR or growth, low Payback and a favorable (i.e. low) Timeliness Rank from Value Line.

Robert L Colby                                                                                                               March 30th 2011

Corequity Valuation Model Results

Corequity is an equity valuation model which takes into account the normalized earnings, the derived reinvestment return plus yield, and the history of relative valuation to project a Valuation return or risk as a percentage change in price.

The current universe is just over 500 publicly traded US equities.

This equity universe has been valued monthly for over 6 years and the results were screened for the best and worst values. Their relative performance in the subsequent month was calculated and their indices are shown below.*

The average Undervalued stock has outperformed our universe by 468 basis points per annum while the Overvalued average underperformed by 340 basis points pa. The resulting spread is 8.1% per annum in favor of the Undervalued over the 6 1/4 year period.

Even more pronounced, a subset of the Overvalued (comprising of 25% of the total) underperformed the universe by 1251 basis points per annum. In absolute terms, $1,000 invested in this group is worth $378 after 6 ¼ years suggesting a particularly good source of short candidates.

* Screens are based on top and bottom quartiles of E/M (Estimate/MPEPS, or smoothed earnings) and top and bottom two quartiles of VR, Valuation Return or Risk.

Sector Valuation Results

December 31st 2010 Undervalued and Overvalued lists

Our screens are working in this market as evidenced by these two short lists taken from the year end screens.  The equities in UVEPS and OVEPS are a subset of the larger valuation screens by virtue of their favorable and unfavorable rating by a third party.  The spread between the two in just over 2 months is 10% in favor of the undervalued list.

This is a Porfolio Map of the UVEPS list which is up 10.9% so far this year.

Their opposite screen OVEPS is up only .3% while the S&P 500 is up 5.0%.

Please note that the color screen is not quite equivalent but close.  The color scales which reflect price change are close but not exact.

Robert L. Colby