One of the most respected names in the investment community is Value Line. Their research is an outstanding resource to both new and seasoned investors. While a subscription might seem expensive, publications are often available for free at local libraries.
In this article, we're going to provide an overview of Value Line, the publishing company. Next, we're going to discuss how their report is organized. Finally, we'll explain how to read and interpret the information found in these reports.
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 data 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.
Here we're going to focus on the Value Line Investment Survey. This is 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 public libraries often subscribe, and make this insightful information freely accessible.
To keep things simple we're going to refer to the Summary as the Value Line Report. The report itself is a one page summary that is packed with information. In fact, there is so much information that beginner investors can be confused as to where to focus their attention.
The research analysis is 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:
Value Line's Timeliness rating is arguably the single most important investment recommendation found 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:
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 that stock then becomes a candidate for sale.
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 choose stocks with a 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 are unnerving to the point a stock might be sold prematurely, then it's best to pick a stock with a Safety score of 1 or 2.
The 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.
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, their beta values are derived using the movement of the stock's price each week relative to the movement of the NYSE Composite. They use five years of weekly data, over 250 data comparisons, to derive beta values.
The most important factor to remember about beta is that it is a measure of a stock's volatility or swings in 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.
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.
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. Expected gains and total annual returns can be found in this section in addition to price projections.
Investors looking for stocks that will provide a consistent source of income will want to take a closer look at dividend paying stocks. This information can be found on the top line of the report. The value to look for is labeled as dividend yield, which is calculated as the annual dividend divided by the price of the stock.
Generally, investors looking for a steady source of income will buy stocks with a dividend.
About the Author - Reading a Value Line Report