New Investing Resources .
readers find problem with Morningstar Data.
pleasant switch. Instead of telling you about sites disappearing, this
week I’m going to describe two investing resources that I’ve
recently discovered. Also, readers alerted me to a problem involving
Morningstar data that I suggested using in a recent column about mutual
funds. Here are the details.
Screening is a process for searching through all listed stocks or mutual
funds to find those meeting your particular requirements. Until it shut
it down last year, Quicken’s stock screener was many investors’
favorite because it was easy to use, yet provided a good assortment of
screening selections. That loss left us with few choices in the
is filling the void with a screener that is similar to Quicken’s in
terms of versatility and ease of use. Netscape doesn’t usually come to
mind when you think of financial tools. But AOL, a unit of Time Warner,
appears to be resurrecting the name as an Internet portal, a la Yahoo!
Netscape’s screener, you can search for just about everything that you
could have on Quicken. About the only Quicken parameter that Netscape
doesn’t offer is relative strength, which compares a stock’s price
action compared to the overall market. On the positive side, using
Netscape, you can search for companies based on free cash flow (excess
cash after accounting for all expenses and capital equipment costs).
That’s an important feature because many investors won’t consider a
stock that isn’t generating free cash.
Get to the
screener from Netscape’s home page
& Business and then click on Stock
Screener in the Investing section.
Judging by my mail, a lot of you are interested in Canadian Royalty
Trusts, which many U.S. investors refer to as Canroys. These are oil and
natural gas exploration and development companies headquartered in
Canada. Because of their tax status, they distribute most of their cash
flow to unit holders (shareholders). Most pay monthly distributions
are paying dividends equating to double-digit yields, mostly in the 12
percent range, but some as high as 16 percent, hence the interest from
Of course the
yields are high for a reason. The payouts will fall if oil prices drop.
Even if they don’t, the CANROYs are depleting their existing resources
and there’s no guarantee that they’ll be able to maintain current
production levels indefinitely.
the best place to research the topic. From Investcom’s home page (www.investcom.com),
Trusts from the dropdown menu and then select Resource
Trusts for a complete list of Canroys. Click on a company name to
see a short
profile. From there you can view a trust’s distribution history,
recent news stories and a short synopsis of recent analyst reports, if
sure you do your due diligence, and don’t put your retirement money
In a recent column, I described a five-part mutual fund checklist to
quickly rule out funds not worth researching. I suggested using
Morningstar’s site (www.morningstar.com)
to find the needed information.
One of the
factors I advised checking was a fund’s price/sales ratio, a valuation
measure listed on Morningstar’s Portfolio
report. In the column I stated that a mutual fund’s price/sales
ratio is the average P/S (share price divided by 12-months sales per
share) of its stock holdings. Based on my own research, I advised
avoiding funds with P/S ratios above 5.
take long for alert readers to point out that something was amiss.
Morningstar’s fund P/S ratios appeared abnormally low.
checking with Morningstar, I found that, about two years ago, it changed
its method of calculating all of the valuation ratios listed in its
Under the old
way, Morningstar would average the valuation ratios of all stocks in the
portfolio (weighted by percentage of the portfolio’s net asset value).
The new method uses a more
complicated formula. I don’t have the room to explain the details, but
the differences are substantial.
for the White Oak Select Growth fund, the price/sales ratio calculated
the conventional way would be 7.7, but Morningstar now lists it as 4.7.
Similarly, White Oak’s price/earnings ratio is 32.9 calculated the
standard way, but Morningstar says 25.4.
says it has good reasons for doing the math its way, but its numbers
won’t work for my checklist, because my research was based on
valuation ratios calculated the old way.
way out of this dilemma is to use valuation ratios computed the
conventional way by Lipper, another mutual fund rating service owned by
Reuters. You can find the Lipper’s valuation ratios on Forbes (www.forbes.com)
or Smart Money’s site.
checked, Smart Money had more recently updated information than Forbes.
From Smart Money’s home page (www.smartmoney.com),
enter the fund name or ticker symbol in the search box to access the
report. From there, select the Portfolio
report to see the valuation ratios.
and Forbes both display the price/earnings and price/book ratios, but
not price/sales. So, use P/E in place of P/S. I’ve found that funds
with P/Es above 30 signals high risk, especially in a weak market.
Risk-averse investors should select funds with P/Es of 25 or less.
Please let me
know about any investing resources you’ve found that I haven’t
mentioned in these columns, and thanks to readers who gave me the heads
up on Morningstar’s ratios.