Each week we review the stocks that we cover in the current volume of Value Line. This week is Volume 13 which covers computer, internet, financial services and banking stocks.
The the two most important measures are VR (Valuation Return/Risk) and E/M*. VR is the projected percent price change given the current estimate and the historical relative valuation for the individual stock using Payback. E/M is the ratio of Estimated Earnings to normalized Earnings or MPEPS. It is important that undervalued stocks have a ratio of close to or over 1.0x and vice versa.
In addition, we have included the Implied Earnings (IEPS) and its derived Reinvestment Return (ImRR). These are the numbers needed to be fairly valued and useful if you do not agree with the MPEPS number and its derived RR.
In this volume Microsoft and Yahoo stand out as attractive values. Microsoft is undervalued by 29% if its current normalized earnings of 2.95 (2013) hold and grow at 16.4%. It is fairly valued if its normalized earnings are 2.53 growing at 13.0%.
* In the 8 years ending in September of this year, the Undervalued screens (4th percentiles of VR and E/M or 4,4) out performed the Overvalued (1,1) by close to 800 basis points per annum real time.
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