The InvestRate’s Stock Ranking Model combines both major approaches to equity research:
    (i) fundamental valuation on the basis of discounted future cash flows; and
    (ii) relative comparison on the basis of carefully selected financial ratios.

With the fundamental approach, the Model derives implied stock values from estimates of potential future cash flows, assuming all companies maintain a stable long-term growth in line with the overall economy and operate at margins consistent with long-term industry averages. The Value Potential of all stocks is then rated on a five-grade scale (“Strong”, “High”, “Average”, “Low” and “Poor”) on the basis of a ratio of this implied value to a stock’s current market price. Based on the same ratio, we also report the Value Potential Percentile Rank for every stock. This indicates percent of all stocks under coverage that have the ratio of the model-implied value to the current market price lower than that of the security in question.

With the relative approach, our analysts look at a set of valuation (price-based) and fundamental (balance sheet-based) ratios and compare how individual companies rank relatively to (i) all stocks under coverage; and (ii) all stock within their industry. After aggregating a stock’s relative performance in these ratios, the model produces the Relative Value Percentile Rank. The rank indicates percent of all stocks under coverage that rank below the stock in question in this scheme.

Model limitations:

InvestRate’s ratings and rankings do not have regard to specific investment objectives, financial situation and particular needs of any specific investor. The Model identifies stocks’ potential value under a number of assumptions, but it does not deal with specific events that might effect individual companies. There is no guarantee that the potential will be realized. It is recommended that the model's results are applied on widely diversified portfolios and combined with other established valuation and stock-picking methods.

A detailed description of the model is available in this methodology flowchart (61 kB, PDF).

List of stocks in COVERAGE



The weekly-updated Value Rating report provides a complete overview of InvestRate's Value Potential and Relative Value rankings as well as basic price-trend indicators and risk ratings for more than 450 securities from the non-banking sector of the S&P 500. The content includes:
   • Value Potential rating ("Strong", "High", "Average", "Low", or "Poor");
   • Value Potential Percentile Rank;
   • Relative Value Percentile Rank;
   • A notice whether the stock is included in the Value Watch selection;
   • Risk Factor rating ("Moderate", "Average", "High", or "Very high") based on the ratio of a company's current earnings to those implied by the InvestRate's Stock Ranking Model (the model uses an assumption that all companies will tend to operate at margins consistent with long-term industry averages);
   • Description ("Up", "Neutral", or "Down") of short-term and long-term price trends, and the long-term sentiment based on relationships between the stocks' current market prices and their 50- and 200-day moving averages.

InvestRate's VALUE WATCH

The Value Watch is a selection of 50 non-banking US stocks included in the S&P 500 that we feel deserve investors' attention since they show the greatest potential for value appreciation on the basis of outcomes of the InvestRate's Stock Ranking Model. To be eligible for inclusion in the Value Watch, a stock needs to have both Value Potential and Relative Value ranks of at least 60%. The list comprises of fifty securities with the highest Overall Rank, the average of the two percentiles.

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