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URL:  http://boards.fool.com/test-of-valuation-methods-15929869.aspx

Subject:  Test of valuation methods Date:  10/15/2001  4:59 PM
Author:  DrBob2 Number:  158 of 260

Thanks to the generosity of those on this board, I have put together an almost complete collection of SI Pro data disks going back to 9-97. Each monthly disk contains a section “Valuations” that ranks stocks by various methods. I decided to see how 12 of these methods were at selecting winning stocks.

For each month the best five stocks for each method were noted and their returns during the following 12 months calculated. Only stocks with a market capitalization greater than two billion dollars were considered.

The period covered included a hugh bull run, a short correction and a bear market still in progress. Since some of the screens performed quite differently during the bear market, I have broken out recent results.

Here are the arithmetic averages for the 12 valuation methods.

All Months Bear Market
9-97 to 10-00 10-99 to 10-00
Ave P/CF 16% 1%
Ave P/FCF 14 29
Ave P/S 73 - 8
.
Ave P/E - 6 - 9
Ave P/Yld - 2 9
P/CF 3 -26
.
P/FCF 25 30
P/S 18 -48
P/Yld 4 11
.
P/E - 3 -14
P/E & Est 10 10
P/EA & Est 0 14

The place to be during a bull market is clearly in the Ave P/S stocks. The method picked out stocks such as QCOM early on because of their tremendous sales growth rates. 12-month returns held up well as the bear market started because of the low purchase prices. However, by the fall of '99 the blow-off stage of the bull market began and returns for the annual hold began to turn negative. From the 10-99 start date, the best performing screens were the Ave P/FCF and the P/FCF, with the latter having slightly better returns and the former less volatility.

For a smoother ride one might want to consider a 50/50 blend of the Ave P/S and the P/FCF methods, with annual rebalancing. For such a blend the geometric average (appropriate when compounding) for all 35 start months was 40%, compared to 47% for the Ave P/S method alone.

Start
Date Ave P/S P/FCF 50/50 Blend
97-09 43% 23% 33%
97-10 1 9 5
97-11 13 10 12
97-12 36 17 26
.
98-01
98-02 7 24 16
98-03
98-04 9 72 40
.
98-05 48 - 9 20
98-06 80 - 8 36
98-07 130 - 2 64
98-08 122 - 4 59
.
98-09 291 44 168
98-10 264 33 148
98-11 324 20 172
98-12 351 12 182
.
99-01 174 7 90
99-02 363 -22 170
99-03 107 -11 48
99-04 85 - 7 39
.
99-05 31 18 24
99-06 79 43 61
99-07 32 14 23
99-08 30 101 66
.
99-09 13 131 72
99-10 -28 70 21
99-11 37 87 62
99-12 -13 33 10
.
00-01 -30 2 -14
00-02 -29 4 -12
00-03 -25 -26 -26
00-04
.
00-05 -12 35 12
00-06 - 7 39 16
00-07 - 2 38 18
00-08 18 33 26
.
00-09 11 28 20
00-10 -11 13 1

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