HOW TO READ THE WALL STREET JOURNAL Monica Haven, E.A., J.D., L.L.M.

Transcription

1 HOW TO READ THE WALL STREET JOURNAL Monica Haven, E.A., J.D., L.L.M. You retrieve the newspaper from your driveway, sip a steaming cup of coffee, unfurl the pages and stare blankly at the charts and tables. Monica Haven, E.A. will help you to decipher the fine print and enable you to glean information from media sources and financial statements to better manage your investment portfolio. The information contained herein is for educational use only and should not be construed as tax, financial, or legal advice. Each individual s situation is unique and may require specialized treatment. It is, therefore, imperative that you consult with tax and legal professionals prior to implementation of any strategies discussed. Sources of 3 rd Party Information What s available? A. Print Media Wall Street Journal (800) Investor s Business Daily (800) Barron s (800) BusinessWeek (800) Fortune (800) Forbes (800) Money (800) B. Subscriptions Value Line (800) Provides regularly updated information and analysis on each of approximately 1,700 stocks in more than 90 different industries in a distinctive one-page format which is updated every 13 weeks Morningstar (866) Provides one-page reports on 1,600 funds summarizing years of performance data and providing risk-balanced star ratings Daily Graphs (800) Published weekly, Daily Graphs NYSE/AMEX Edition presents over 70 technical and fundamental items for more than 1,600 stocks C. Internet SBC Yahoo! Finance ( for corporate snapshots Smart Money ( for personal finance information BigCharts ( for charting and historical quotes Fund Families Investopedia ( for dictionary of terms D. Other SEC Filings ( All companies, foreign and domestic, are required to file registration statements, periodic reports, and other forms electronically through EDGAR, which can be accessed for free. Prospecti Annual reports Monica Haven, E.A., J.D., L.L.M.

2 2 Market Index Symbol As Of: Last Change % Change Dow Jones Industrial Average Dow Jones Transportation Average Dow Jones Utilities Average CBOE Nasdaq 100 Index NASDAQ Composite NYSE Composite Index S&P 500 AMEX S&P Midcap 400 Index S&P 100 Index Nasdaq Computer Index PSE Technology Index AMEX Interactive Week Internet Index AMEX Morgan Stanley High Tech Index PHLX Semiconductor Index AMEX Major Market Index Wilshire 5000 Equity Index PHLX Gold Silver Index AMEX Oil Index Russell 2000 Index DJIA DJTA DJUA NDX NASDAQ NYA SP500 MID OEX IXCO PSE IIX MSH SOX XMI TMWX XAU XOI RUT 10:06:25 AM 12, % 10:06:38 AM 4, % 10:06:37 AM % 10:06:34 AM 1, % 10:06:13 AM 2, % 10:06:37 AM 8, % 10:06:23 AM 1, % 10:06:27 AM % 10:06:36 AM % 10:06:34 AM % 10:06:29 AM % 10:06:27 AM % 10:06:28 AM % 10:06:33 AM % 10:06:28 AM 1, % 10:06:37 AM 13, % 10:06:35 AM % 10:06:28 AM 1, % 10:06:37 AM % Monica Haven, E.A., 2 J.D., L.L.M.

3 VALUE LINE 1. Rankings Timeliness = measure of the expected price performance for the coming 6 to 12 months relative to our 1,700 stock universe, determined primarily by earnings growth. Stocks ranked 1 (Highest) and 2 (Above Average) are likely to perform best. CAVEAT: Stocks ranked 1 for Timeliness are often more volatile than the overall market and tend to have smaller capitalizations. A stock portfolio of #1 Ranked stocks for Timeliness from beginning in 1965 and updated at the beginning of each year, would have shown a gain of 17,949% through June 30, That compares with a gain of 1,044% in the Dow Jones Industrial Average over the same period. Value Line s stocks outperformed the Dow by over 17 to 1. Safety = measure of the total risk compared to other stocks and derived from 2 measurements weighted equally: Financial Strength and Price Stability. Financial Strength is a measure of the company's financial condition. The largest companies with the strongest balance sheets get the highest scores. Price Stability is based on a ranking of volatility over the last 5 years. Stocks ranked 1 and 2 are most suitable for conservative investors. Technical = a predictor of a stock's short term (3 to 6 months) relative price change. Beta = a measure of volatility. 2. Analyst's Commentary When the raw numbers don't tell the full story, investors may look to the analyst s expectations for the future. 3. Financial Estimates The estimates of sales, earnings, net profit margins, income tax rates are derived from spread sheets maintained on every company. 4. Historical Financial Data Used to identify trends, the investor may look at operating margins and net profit margins to see if they have been expanding, narrowing, or staying flat and check the percentages to see if the Return on Total Capital or the Return on Shareholders' Equity have been rising, falling or remaining stable. 5. Annual Rates of Change Trends are also important here to check whether growth has been increasing or slowing and to see what the analyst predicts for the future. 6. Target Price Range This is the range in which the price is likely to fall during the next 3 to 5 years and is based on earnings projections multiplied by the estimated price/earnings ratio. The width of the high-low range depends on the stock's Safety rank. A stock with a high Safety rank has a narrower range, one with a low rank, a wider one to 5-year Projections Value Line forecasts the potential high and low average prices, the % price changes, and the expected compound annual total returns (price appreciation plus dividends). Investors whose primary goal is long-term price appreciation should study the 3- to 5- year projections carefully and choose stocks with above-average appreciation potential. 8. Price/Earnings Ratios The P/E is probably the most widely used statistic in investing and is calculated by dividing the price of a stock by 12 months of earnings. If, for example, a stock is selling at $40 a share and its annual earnings are $2.00 a share, its P/E is 20. Monica Haven, E.A., J.D., L.L.M.

4 IBD Stock Check-up Stock: XYZ Corp Inc Symbol: XYZ Current Price: $53.08 Exchange: NMS Industry Group: Widgets Overall Rating: (97 = A+) 1 Technical Rating 2 (90 = A) Group's Technical Rating 3 (92 = A) Fundamental Rating (95 = A) Group's Fundamental Rating 4 (74 = B+) Attractiveness Rating 5 (74 = B+) worst best Overall Rank: 12th out of 109 stocks worst best Technical Rank: 23rd out of 109 stocks worst best Fundamental Rank: 1st out of 109 stocks worst best Attractiveness Rank: 49th out of 109 stocks 1 The Overall Rating Image is a graphical representation of the stock's Overall Rating as determined by a proprietary formula incorporating all five of the Stock Checkup Ratings, including technical and fundamental factors that most influence a stock's price. 2 Technical Rating assesses the overall investment performance of a stock, relative to all other publicly-traded companies and is based on Relative Price Strength Rating, the stock s current price relative to its 52 week price high, Moving Average trends, recent and past price and volume activity. Ratings are on a 1-99 scale, with 99 being highest. For example, a Technical Rating of 90 indicates a stock s overall technical performance has outpaced 90% of the market. 3 Group Technical Rating includes the industry group s price performance rank for the last 26 weeks, the group s percent off its 52- week high, the percentage of stocks in the group making recent new 52-week highs, moving averages and other price trends, Accumulation/Distribution Ratings, and Relative Price Strength Ratings 4 Group Fundamental Rating compares the overall fundamental quality of a stock s industry group to the other 196 industry groups with 99 being best. The measurements include two and three year earnings growth rates, average stability of profit margins, average trend of return on equity, and average Earnings Per Share Rating 5 Attractiveness Rating assesses a stock's attractiveness based on investor demand. It measures current price and volume gauges for each stock and its industry group, and compares the results to all other stocks. Monica Haven, E.A., J.D., L.L.M.

5 5 Earnings Per Share (EPS) Rating Relative Price Strength (RS) Rating Industry Group Relative Strength (Grp RS) Rating Sales + Profit Margins + ROE (SMR) Rating 6 Accumulation/ Distribution (Acc/Dis) Rating A A B Vital Statistics Industry Group Rank (1-197) 7 17 % Off 52 Week Price High -15% Daily Graphs Timeliness A 52 Week Price High $41.50 Alpha Week Price Low $11.75 Beta Year Earnings Per Share Rate 104% Up/Down Volume Year Sales Rate Performance Industry Group Performance % Change Year To Date -6% % Change Year To Date 6% % Change in Last 12 Months 180% % Change in Last 12 Months 97% % Change in Last 4 Weeks 18% % Change in Last 4 Weeks 11% Stock Performance vs. Index* % Change vs Index, Year To Date -8% % Change vs. Index, in Last 12 Months % % Change vs. Index, in Last 4 Weeks 15% Group Performance vs. Index* % Change vs Index, Year To Date % Change vs. Index, in Last 12 Months % Change vs. Index, in Last 4 Weeks 21% 4% 74% 8% 6 SMR Rating = a proprietary rating to help investors identify companies with superior Sales Growth, Profit Margins, and Return on Equity ratios. The rating system is weighted in the following manner: A = Top 20% (Outperforming over 80% of other stocks) to E = Bottom 20% (Outperformed by over 80% of other stocks). 7 Industry Group Rank = a proprietary number ranking the stock within its industry grouping from 1 (best) to Alpha expresses how much a stock would have appreciated or depreciated on average on a daily basis over the last year, assuming the S&P 500 remained unchanged during the period. For example, an ALPHA of 0.1 means the stock s price would have appreciated at the rate of 0.1% per day over the last year, assuming an unchanged S&P 500 Index. 9 Beta measures a stock s price volatility relative to price performance of the S&P 500 Index, over a 12-month period. Beta values range from 9.99 (positive) to (negative). A stock with a high beta coefficient (in absolute terms), such as 2.50 or -2.50, is likely to have greater price percentage movement relative to the S&P 500 Index. Conversely, a stock with a low Beta coefficient (in absolute terms), such as 0.75 or -0.75, will have the tendency to rise or fall in price more slowly than the S&P 500 Index. 10 Stock Performance vs. Index compares the stock s price performance to four major market indexes: the Dow Jones Industrial Average, Nasdaq 100, S & P 500 and Russell %, for example, means that stock has doubled the performance of the specified market index for that time period. Monica Haven, E.A., 5 J.D., L.L.M.

6 6 Book value per share = ratio of stockholder equity to the average number of common shares. Book value per share should not be thought of as an indicator of economic worth, since it reflects accounting valuation (and not necessarily market valuation). Earnings before interest, taxes, depreciation, and amortization = revenues less cost of goods sold and selling, general, and administrative expenses. Dividend yield = annual dividends divided by current stock price OR return on a share of a mutual fund held over the past 12 months, including sales charges but not redemption charges. Debt/equity ratio = long-term debt divided by common stockholder equity. Short ratio = Number of shares of a security that investors have sold short divided by average daily volume of the security (measured over 30 days or 90 days). When people short, it is usually (but not always) because they are pessimistic about the security's future performance. However, shorting inevitably involves buying at some point. Hence, some would interpret a high short ratio as an indicator that there will be some buying pressure on the security that would increase its price. Monica Haven, E.A., 6 J.D., L.L.M.

7 7 E F B A E C A. Price Line, 200-Day Moving Average = the average price over the previous two-hundred trading sessions. It is calculated by summing the closing price over the last 200 trading sessions and dividing by 200. B. 50-Day Moving Average C. 50-Day Moving Volume Average D. Volume Bar represents the number of shares traded. The length of the volume bar indicates a value that corresponds to the scale at its right. In the case where a volume bar exceeds the height of the scale, the length of the volume bar is no longer proportional to other volume bars. The color of a volume bar is determined by its corresponding Price Bar; blue if the most recent trade is equal to or greater than the previous period's last trade, and pink if it is less than the previous period s price. E. The Relative Strength line compares a stock's price performance versus the S&P 500 index. Many charting services plot a RS Line along with the stock's price, moving averages, etc. The line is derived by dividing the stock price by the S&P 500 Index value. An upward sloping line means that the stock's price is outperforming the S&P 500 Index. F. Relative Price Strength Rating measures each stock's price performance over the latest twelve months compared to all other stocks. The rating scale ranges from 1 (lowest) to 99 (highest). Stocks rating below 70 indicate weaker or more laggard relative price performance. D Monica Haven, E.A., 7 J.D., L.L.M.

8 American Eagle Outfitters (AEOS) ran up 187% last year. The teen apparel retailer got a lift as the preppy look it offers turned trendy. The six-month base that kicked off the week ended Aug. 1, , was part of a much longer correction. It looks like a low handle began to form in late January 2004, two weeks before the breakout 2. If you get a close-up of the base on a daily chart, though, you can see a cup-with-handle pattern within the longer base. The left side of the smaller base started Nov The handle began Jan. 21, , and continued the next seven sessions on fairly light volume. You could have bought shares on Feb. 2 5, when the stock rose above the pivot on heavier turnover. The handle's midpoint was slightly lower than the base's midpoint. So you could've also bought shares Feb. 5 as the stock gapped up on a big spike in volume 6. By this time, American Eagle was trading well above its 50-day moving average. Investors who bought at either of the February buy points wouldn't have gotten shaken out. Now look back at the weekly chart. The stock offered more chances to buy or add a smaller number of shares in mid-may, mid-july, and early October at pullbacks to its 10-week line 7. Those who got in at the pivot and held on enjoyed a healthy, 147% gain through the end of the year. [from Monica Haven, E.A., J.D., L.L.M.

9 9 Updated: New York, Mar 04 11:28 Key Rates CURRENT 1 MONTH 3 MONTH 6 MONTH 1 YEAR Federal Reserve Target Rate Month Libor* Month Libor Prime Rate Year AAA Banking & Finance Year AAA Banking & Finance * LIBOR = London Interbank Offered Rate that international banks dealing in Eurodollars charge each other for large loans Mortgage Rates provided by Bankrate.com Rates may include points. CURRENT 1 MONTH 3 MONTH 6 MONTH 1 YEAR 15-Year Mortgage Year Mortgage Year ARM U.S. Treasuries MATURITY DATE DISCOUNT/ DISCOUNT/ CHANGE 3-Month T-Bill 06/05/ / / :14 6-Month T-Bill 09/04/ / / :23 COUPON MATURITY DATE CURRENT PRICE/ PRICE/ CHANGE 2-Year /28/ / / :23 5-Year /28/ / / :23 10-Year /15/ / / :23 30-Year /15/ / / :24 TIME TIME Municipal Bonds National Municipal Bond Yields: Triple-A Rated, Tax-Exempt Insured Revenue Bonds CURRENT PREVIOUS CHANGE IN 28% EQ 1 WEEK 1 MONTH 6 MONTH 5-Year 2.96% 2.88% 0.08% 4.11% 2.86% 2.94% 3.85% 10-Year 3.74% 3.66% 0.08% 5.19% 3.65% 3.59% 4.27% 15-Year 4.41% 4.31% 0.10% 6.12% 4.29% 4.17% 4.63% 20-Year 4.87% 4.72% 0.15% 6.76% 4.58% 4.44% 4.80% 30-Year 5.02% 4.87% 0.15% 6.97% 4.73% 4.51% 4.83% Monica Haven, E.A., 9 J.D., L.L.M.

10 Franklin CA Tax-Free Income A FKTFX Growth of $10, Fund /- Cat /- LB Municipal Trailing Returns % YTD 3 year 5 year Fund % Rank in Cat This fund sports an outstanding five-year performance record. We focus on five-year returns because longer records have greater predictive power than shorter records. Be sure to consider the fund's risk level to determine what role it played in producing these results. You can get an idea of this by looking at the risk component of the star rating and fundamental risk factors such as credit quality and interest-rate risk. Credit Quality AAA 62.0 AA 5.0 A 11.0 BBB 14.0 BB 6.0 B 0.0 Below B 0.0 Not Rated 2.0 Morningstar Rating Morningstar Risk Below Average This fund earns 4 stars under Morningstar's rating methodology, meaning that compared with other funds in its category, it has historically generated above-average returns given the amount of risk it has taken on. In this case, one thing that has helped the fund is that it has been quite a bit less volatile than most of its peers. Expense Ratio % 0.58 This fund has a very low expense ratio for a front-load offering in its category. Expenses are a big factor in long-term, relative performance, and funds with lower expenses generally outperform those with higher expenses. Manager Manager Start Date John Wiley Christopher S. Sperry This fund has had stable management. This is helpful in assessing its performance history because you know that most or all of its record stems from their efforts. Sector Breakdown (% of bonds) General Obligation Advance Refunded State Appropriated Tobacco 1.08 Non-state Appropriated Tobacco 4.17 Education 4.58 Health Housing 1.89 Industrial 0.38 Transportation Utilities 3.16 Water/Sewer 9.82 Misc. Revenue 5.63 Monica Haven, E.A., J.D., L.L.M.