Reading a Value Line Report

Value Line is one of the most respected names in the investment community.  Their research is an outstanding resource to both new and seasoned investors.  If you've ever seen a Value Line report and wondered what all that information was telling you - keep on reading.

In this article we're going to give you a quick run down of Value Line - the company itself.  Next up we're going to discuss how the report is organized.  Finally, well explain how to read and interpret a Value Line report.

Value Line

Founded in 1931 as Arnold Bernhard & Company, Inc., Value Line Publishing, Inc. is a stock research company that tries to remain an objective and accurate source of investor information.  The company collects and analyzes information on 8,000 stocks and 13,000 mutual funds.

The company tracks, ranks, and analyzes information, and compiles reports including The Value Line Investment Survey, arguably one of the most-read investment publications in the world.  Value Line claims more than 500,000 investors rely on its information for decisions concerning stocks, mutual funds, options and convertibles.

In this publication we're going to focus on the Value Line Investment Survey - a weekly publication that tracks a universe of 1,700 stocks and 90 industries.  A subscription to this publication runs around $600 per year but pubic libraries often subscribe and therefore make this insightful information accessible to even the beginner investor.

Value Line Reports

To make things simple we're going to refer to the Value Line Investment Summary as a Value Line Report.   The Value Line Report itself is a one page summary that is packed with information - so much so that the beginner investor may get confused as to where to focus their attention.

Value Line's Advice

You'll find Value Line's analysis summed up in a small box that appears immediately below the name of the company's stock you're evaluating.  That advice has four components:

• Timeliness
• Safety
• Technical
• Beta

Value Line Timeliness

Value Line's Timeliness rating is arguably the single most important investment recommendation you'll find in their report.  This rating is on a 1 to 5 scale with 1 representing the highest score achievable.

This is a relative ranking within their universe of 1,700 stocks.  The distribution of those ratings is as follows:

1 = Top 100 Stocks
2 = Above Average (300 Stocks)
3 = Average (900 Stocks)
4 = Below Average (300 Stocks)
5 = Lowest Rated 100 Stocks

Investors are encouraged to purchase a portfolio of stocks across six or more industries with a ranking of 1 for Timeliness.  Over time, investors are encouraged to monitor this rating and when a stock falls to a 4 or 5 rating that stock then becomes a candidate for sale.

Value Line Safety

In the Value Line Report the term Safety is used as a proxy for risk.  Stocks are rated on a scale of 1 to 5 with 1 representing those securities that are financially strong and therefore less volatile.  Investors should evaluate their own personal risk tolerance profile and chose stocks with a Value Line Safety rating that aligns with their comfort zone.

The lower the Safety score, the greater the short-term price movements the stock will experience.  If short term price swings will make you nervous - perhaps to the point where you're selling a stock prematurely - then it's best to pick a stock with a Safety score of 1 or 2.

Value Line Technical

Value Line's Technical rating is very similar to its Timeliness rating with one important difference.  The Technical rating does not consider earnings per share projections - only the opportunity for a stock's price appreciation.  Value Line encourages investors seeking short-term capital gains - in the three to six month timeframe - to purchase stocks with Technical ratings of either 1 or 2.

Value Line Beta

A stock's beta is a measure of a particular stock's price volatility relative to a broader measure of stock price movements such as a market index.  Many stock beta calculations are performed relative to the S&P 500 however; the Value Line Beta calculation uses the New York Stock Exchange Composite Index.

In fact, Value Line's Beta values are derived using the movement of the stock's price each week relative to the movement of the NYSE Composite.  Value Line uses five years worth of weekly data - over 250 data comparisons - to derive their beta values.

The most important thing to remember about beta is that it is a measure of a stock's volatility or price movement.  A stock with a beta above 1.0 will experience more price movements (both up and down) than the comparative index while a stock with a beta of less than 1.0 will experience smaller price fluctuations.

Other Report Information

There are two other relatively important pieces of information in the Value Line Report and just how important that information is to the investor really depends on their investment strategy.

Investing for Price Appreciation

Investors looking for long or short term capital gains should focus on the stock's future price projections.  These price projections can be found immediately below the advice box in the upper left hand corner of the report.  There you will find not only price projections but also expected gains and total annual returns.

Investing for Income

If you're looking for stocks that will provide a consistent source of income then you'll want to take a closer look at dividend paying stocks.  You can find this information on the Value Line report on the top line of the report.  The value you'll want to look for is labeled as the dividend yield.

Generally investors looking for a steady source of income will want to buy stocks with a dividend yield that is 3% or higher.  Dividend yield should be used as a secondary filter, meaning the investor should first look for top Timeliness scores then dividend yield.

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