Friday, January 01, 2010

BAGAKOAA Value Formulas Adjustments for 2010


Value Formulas Adjustments for 2010

Many of you know this blog grades stocks like wine. You might drink a 70 or 80 but you probably are not going to put a case of it in the cellar. The same is true with stocks. If you want to speculate and try this stock or that stock, cool. If you want to create wealth, leverage your opportunities and limit your risks, it is best to have a stock that has some sound basic fundamentals or as I call them fundies.

Every year or so I look at how I have been valuing stock and make adjustments as necessary. Over the Holiday break we had plenty pf time to do that so I did. In the past, my key measurements were return on equity, 5 year net income before taxes, 5 year cash flow, margins compared to industry and the 5 year average of the company, and long term debt versus net income.

These are all still important, but this year I am adding a few more. I will be looking at the chart to see where the current price is in relation to the 200 day moving average line. If it is in the 1-50% above the 200 average line it will get another point. To explain, a stock price below the 200 day average is usually not a good thing. A stock over 50% above the 200 day average could be running a little to hot.

With companies spending so much time cutting cost, I added value on any company that is also growing revenue. If the company had a 5% or better 5 quarter revenue growth it will get another point. If the 5 year revenue growth is above 10% it get another point, above 15% two points, 20% 3 points and above 25% will get 4 points.

The balance of the analysis will remain the same. These changes will now create a possible 23 points. A stock will have to get 20 points to get a 90 rating. I don’t expect to see many of these. If you want details of the analysis don’t hesitate to ask and I would be happy to send you one of my spreadsheets where I actually run the numbers.

Salve Lucrum


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