The One Metric

Investment Hunting just started a Blogger Interview series with an interesting interview with Roadmap2Retire a few days ago (June 21). One question in particular caught my attention, If you could only use one metric to evaluate a stock, which one would you choose? Sabeel’s answer was spot on in my book (I don’t think there is one metric that can be used to evaluate stock. If everything could be boiled down to one single number, investing would be easy. The reality is that investing in a company is a multifaceted aspect and there a hundreds of things to consider – both from a qualitative and quantitative standpoint.), but led me to ponder the proverbial what if: If there were only one which would it be?

With one theme seemingly common amongst the blogging community – where are the values – I would have to answer IH’s question with: a modified version of the 52 week high.

My reasoning is that an efficient market would have most of the variables (P/E, sector, company specific issues) baked into the price, with the wild cards being Black Swan events or Corporate Actions (M&A). The modification I make is I track the 52 week high from time of purchase. I reset my version as new highs are attained but do not reset if a lower 52 week high presents itself.

An example of this are Canadian stocks. In the case of Toronto-Dominion (TD) Yahoo’s 52 week high (6/23) is 45.74 (US$). My TD high is set to $53.49 (US) which was the 52 week high at time of purchase. My rationale is simple: as external events (commodities, currency, housing) abate – the company fundamentals are unchanged, I expect share prices to react in a more rational manner.

Currently, I hold positions in 144 companies. Ten are involved in mergers or spinoffs. Due to abnormal price action, these were excluded. Another twenty were excluded since I’m using them in an experiment with no activity (adding, selling, etc.) permitted at this time. The remaining 114 were analyzed as follows:

DISTRIBUTION – OVERALL
% OF 52 WEEK HIGH (MOD.)

Range Qty %
95-100 26 22.81%
90-95 22 19.30%
85-90 15 13.16%
80-85 14 12.28%
75-80 14 12.28%
70-75 9 7.89%
65-70 5 4.39%
< 65 9 7.89%
114

Basically what I look for with this metric is if a stock is undervalued based on recent history. With Friday’s Brexit sell off, the sectors providing safety in my portfolio were Staples, Utilities and REITs. Notably: CLX, MKC, EPR, KIM, WEC and SJI. But these I consider overvalued since they’re in the 90-100 range.

The 70-90 range falls into the ‘Fair Value’ class. If I’m not overweight, these are the ones I perform further research on. Examples include: SBUX, BLK, TD, SBSI and LTXB.

Finally, I review ones that drop off the grid. Graciously, I refer to these as ‘Deep Value’, but they could be referred to as ‘dogs’ just as easily. The ones in this category attracting my attention are: BAX, AAPL and my recent purchase – MFC. APPL garners the most attention as I consider it a Satellite holding.

I can’t say I follow this process religiously, but definitely as a starting point for in depth research, especially in times like these when buying opportunities present themselves.

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2 thoughts on “The One Metric

  1. I agree Living AFI has some valid points but can’t say they are applicable since my portfolio contains none of the proverbial “sin” stocks. And yes I do read (and occasionally post on) Investment Hunting’s blog.

    Thanks for commenting!

    Like

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