Standard & Poor's latest list uses price and valuation filters to uncover 15 names that may be too rich for investors' blood
From Standard & Poor's Equity ResearchIt's early November, and that means holiday shopping season is getting under way. And just as you wouldn't want to pay more than you should for a plasma TV or a cashmere sweater when there are better, cheaper alternatives, you don't want to overpay for stocks. That was the thinking behind this week's screen.
Basically, we wanted to find stocks that had gotten ahead of themselves. We started by looking for issues that have enjoyed some recent success. We first searched our stock universe for issues that were trading within 5% of their 52-week highs. Then we turned to Standard & Poor's relative strength ranking, which shows, on a scale of 1 to 99, how a stock has performed compared with all other companies in S&P's universe on a rolling 13-week basis. We looked for those with a relative strength ranking in the highest 10% of the U.S. stock universe.
Next, we turned to a tried-and-true valuation measure. Each stock had to place in the highest 20% in our universe in terms of price-to-earnings based on S&P analysts' estimate for the company's current fiscal year.
Then we went deeper by consulting S&P's proprietary Fair Value ranking system. S&P's model calculates a stock's weekly Fair Value—the price at which it should trade at current market levels—based on fundamental data such as corporate earnings and growth potential, return on equity, current yield relative to the S&P 500, and price-to-book value.
Stocks are ranked from 5, indicating significant undervaluation compared with the Fair Value universe, to 1, indicating significant overvaluation. We looked for those issues ranked 1.
All the stocks had to trade above $5 per share and have a market capitalization of at least $500 million.
Fifteen stocks turned up. Given the steep increase in the price of gold, the screen returned many gold-related stocks.
Inverness Medical Innovations
Potash Corp. Saskatchewan