BI > DECEMBER 2000

'Quickening' the Screening Process

Introducing a One-Click Scorecard

The keyword here is launch . This resource is not intended to be a substitute for a Stock Selection Guide or the customary study of industry and expectations performed by NAIC practitioners.

Quicken.com built this resource using a systematic interpretation of NAIC guidelines. The parameters place heavy emphasis on long-term growth characteristics and the P/E valuation models require five years of operating data, including real (positive) earnings. A company with erratic earnings and/or more than a single year of negative earnings within the last five years is not treated kindly by the program. At the time this issue went to press, a total of four investing strategies could be found at the site. One focuses on Buffett-type value models and another stresses dividend-based models. The site may attempt to switch you to one of the other methods. We know better. Switch back and hunt down some promising opportunities using NAIC concepts.

A link to the site is provided at www.better-investing.org. Upon arrival, visitors will be greeted with a screen that includes the elements shown in Figure 1. Enter your favorite ticker symbol and click on "Go." Figure 2 provides a look at part of the output. The program examines a series of seven questions, focusing on NAIC characteristics of quality and value. A cursory examination of growth, profitability and value characteristics is shown below for Tellabs.

Figure 1. Access this feature by clicking on the Quicken link found at: www.better-investing.org. You will be greeted by this screen, home to at least three different strategies as this issue went to press. Make sure that the strategy utilized is "NAIC's Established Growth" (as shown here.) The program will default to the other strategies under certain conditions.

Click to enlarge.

Figure 2. The One-Click Scorecard for the "Established Growth Strategy" subjects the company under review to a set of seven questions, intended to explore NAIC definitions of Quality and Value. In the example shown above, Tellabs passes all seven tests, leading to Quicken.com's result of "Strong Interest." The scorecard can be a help to investors looking for some indication of whether a company might make a good study candidate.

For this version of the program, the only adjustable figure that can be modified by the user is the expected EPS long-term growth rate. The consensus forecast for the company is shown. You can adjust the expectations for EPS growth to your own level of comfort. This, of course, will impact the Upside-Downside Ratio and Expected Total Return.

Click to enlarge.

In the accompanying figure above, the price zones have been charted and the current price for Tellabs is compared.

But what about outliers and other judgment considerations? Caveat emptor. In much the same vein that NAIC investors basically ignore "hot stock tips," similar considerations ought to come into play here. There is no substitute, or Cliff's Notes, for checking the growth rate and margin assumptions, while building the price forecast on a Stock Selection Guide. Keep in mind that the program will deliver (and use) an unadjusted five-year average for the expected high P/E. So at best, this is a pre-flight check list -- to help you determine if you should take off on your own SSG study of the company.

The One-Click Scorecard includes a feature that lists the highest expected returns for a set of stocks that pass the tests. This also comes with a warning. The program (so far) does not include any form of quality filter. In other words, it makes no distinction between "good company/good price" and "damaged goods." Use the list generated as the starting point only in your search for stock study candidates, and determine which companies also exhibit relatively strong growth, relatively strong margins, earnings predictability and financial strength. Without due consideration of quality and adding your own judgments, you could find yourself wandering in an investment minefield.

Mark Robertson is director of online resources and senior contributing editor for BetterInvesting. He serves as a member of BetterInvesting Magazine's Editorial Advisory & Securities Review Committee. Mark can be reached at Robertson_Mark@comcast.net.