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Two New Investing Resources .

Also, readers find problem with Morningstar Data.

Here’s a 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.

Easy Stock Screener
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 user-friendly category.

Now, Netscape 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!

Using 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  (www.netscape.com) by selecting Money & Business and then click on Stock Screener in the Investing section. 

Canadian Royalty Trusts
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 (dividends).

Many Canroys 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 U.S. investors.

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.

Investcom is the best place to research the topic. From Investcom’s home page (www.investcom.com), select Income 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 any.

Be sure you do your due diligence, and don’t put your retirement money there. 

Morningstar’s Fund Data
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. 

It didn’t take long for alert readers to point out that something was amiss. Morningstar’s fund P/S ratios appeared abnormally low.

After checking with Morningstar, I found that, about two years ago, it changed its method of calculating all of the valuation ratios listed in its Portfolio report.

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 instance, 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.

Morningstar 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.

The easiest 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.

When I 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 fund’s Snapshot report. From there, select the Portfolio report to see the valuation ratios.

Smart Money 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. 
published 4/3/05

 

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