Putting Market Services to Work

If you read every financial newspaper and magazine, look for fundamental analysis on the Internet, use a brokerage company's research service, and subscribe to several investment newsletters, you will have a lot of information available, but you will spend all of your time reading. You must decide which information is valuable.

Because of the abundance of sources you want to be highly selective and develop your own conclusions from the study of a limited number of relevant ratios. However, you may also want to make use of a number of investment services, which provide a variety of information—everything from forecasts and opinions, through complete analysis of a company including in-depth fundamental analysis and trend reporting.

The Importance of Company Ratings

Many services rate company stocks in several ways. These are worth paying attention to because the ratings provide you with several important indicators of value, risk, timing, and performance. In future chapters, we will show you how to develop a rating system of your own, using a wide range of possible sources (including other rating services).

Below is a summary of two of the ratings you will find through subscription services, or that you will see referred to in analysts' reports. These are the most popular and useful services and both are affordable.

Value Line

This company has been in business since 1931, and is the best-known and most widely used investment service company. Several specialized services are offered by Value Line. One is the Value Line Investment Survey, a study of 1,700 publicly traded companies. Another is a condensed version of its survey, which analyzes 600 stocks.

The interesting feature of Value Line is its combined reporting of fundamental and technical indicators. The service is highly visual, including charts and tables for each of the stocks it studies. Value Line also rates each company for "timeliness," a ranking system it first introduced in 1965. The timeliness ranking is limited to short-term trading goals, and claims to indicate which of 1,700 stocks represent the best buys over the next 12 months, based on an evaluation of a broad range of indicators. For long-term investing, you still need to look to the fundamentals.

Value Line presents its subscribers with constantly updated information. In addition to the timeliness rating, it also provides a safety rating from 1 (highest) to 5 (lowest). Many other short-term and technical indicators are provided, including stock price movement charts, summary of price ranges, and projections for future growth.

In the area of fundamentals, Value Line gives subscribers updated breakdowns of a company's capital structure, working capital, growth rates, quarterly sales, earnings per share, dividends, price-earnings (PE) ratio, earnings predictability ratings, and financial strength. All of these are valuable as summaries of the fundamentals, and can be used alone to make decisions or incorporated into a program of your own design. Going beyond the numbers, these reports also describe the company's business as well as recent news, developments, and prospects.

At the very least, Value Line provides convenience. Information is updated regularly and each company is found on a single page. The survey is accompanied with statistical comparisons for all 1,700 companies studied plus industry analysis. This information is difficult to find elsewhere but extremely valuable when you are trying to determine whether to buy stocks in a particular industry or a particular stock in an industry.

To contact, write to Value Line, 220 East 42^nd Street, New York, NY 10017; or call toll free, 800-833-0046. Web site: valueline.com.