Camelback’s ownership grade reflects its assessment of the
significance of institutional (mutual funds, pension plans, etc.) and
insider trading, with insider trades given the most weight. Insider
trading data typically includes transactions made by a wide range of
company executives, board members, and of any shareholder owning at
least 10 percent of the company’s shares.
however, focuses its analysis on the trading of key, ‘in the know’
officers such as the chief executive officer or chief financial officer.
Stock Valuation Analysis
The program uses
price/earnings and price/sales valuation ratios, along with the earnings
growth rate, to determine whether a stock is undervalued or overvalued.
instance, Camelback doesn't differ much from conventional approaches,
except that it compares historical, rather than forecast earnings growth
to the price/earnings ratio to calculate fair value.
Many selection strategies count on relative strength, a measure of how a
stock has performed compared to the overall market, as a key evaluation
instances, stocks with the highest relative strength are considered the
best candidates, provided that they meet the other qualifying
takes a different view, preferring a consistent and steady uptrend to a
volatile or very steep uptrend. Also, Camelback looks at a stock’s
absolute price action rather than comparing it to the overall market.
That makes it much harder for a stock to garner a good technical grade
in a weak market such as we’ve experienced recently.
Camelback adopts a proprietary formula to combine the four grades into a
total representing the expected price appreciation (return) during the
next six months.
compares the calculated expected return to a risk factor related to the
stock’s historical volatility to come up with its final score ranging
from 1 to 10, where higher is better. According to Jon Markman,
MoneyCentral’s managing editor, “ a stock with a high expected
return and high risk would score lower than a stock with modest expected
return and low risk.”
scores are distributed using a “bell curve,” meaning there are more
stocks rated 9 than 10, and more rated 8 than 9, and so on. At the other
extreme, more stocks are rated 2 than 1, etc. Markman says “most of
the information is at the extremes,” and he advises paying most
attention to 9 and 10 rated stocks and avoiding stocks rated 1 or 2.
Getting StockScouter Ratings
You can access StockScouter from the MSN Money homepage (money.msn.com)
by selecting Investing
(top menu) and then clicking on Stock
Ratings in the Stocks section (left menu). The default display shows
the rating score and a short evaluation summary. Select Details (left
menu) to see a detailed explanation of the rating calculation.
I found the
ratings intriguing. For instance, stodgy Sears garnered a 9 rating while
Chico’s FAS, currently one of the hottest fashion retailers, only
managed a mediocre 6. Hotshot retailer Abercrombie & Fitch, along
with The Gap and Saks, all rated a lowly 3.
surprise, grocer Albertson’s outranked Safeway, 9 to 7, even though
Safeway is generally considered a faster growing operation.
Restaurants, operator of the Red Lobster and Olive Garden dinner houses
with a 10 rating outscored Krispy Kreme (9 rating), and the expanding
Cheesecake Factory (7) and California Pizza Kitchen (4) restaurant
You can see
lists of the 50 highest and 50 lowest rated stocks by selecting Stocks
(top menu) and then clicking on Top Rated stocks (left menu).
Can you make
money using these ratings? Microsoft has data showing buying the 50
top-rated stocks and rebalancing your portfolio every month
substantially beats the market. But doing that is impractical for most
individual investors. I’m saving the lists of highest and lowest rated
stocks and will report back to you on the results of buying those stocks
in a few months. In the meantime, I suggest considering StockScouter as
a valuable source of second opinions to backup your own analysis.