There are several key facts about a company that can help you to size up prospects for its stock. Here’s where to find those facts. In most cases you won’t need more than one or two of the sources listed.
Basic information about the company, including audited financial data for the most recent year and summaries of prior years. Available from brokers and the investor relations office of the company.
Extensive financial data, required to be filed annually with the Securities and Exchange Commission. Includes two years’ worth of detailed, audited financial balance sheets, plus a five-year history of the stock price, earnings, dividends and other data. You can view the forms online (www.sec.gov) or order copies by contacting the Public Reference Branch at: U.S. Securities and Exchange Commission, 450 5th St., N.W., Room 1300, Washington, DC 20549-0102; phone 202-551-8090;. email publicinfo@sec.gov.
Commentaries by brokerage firms’ research departments, containing varying amounts of hard data to accompany the analysts’ recommendations to buy, sell or hold stocks followed by the firm. Available from brokers.
A vast collection of data, including prices, earnings and dividends, stretching back many years, along with analysis and several unique features, such as a “timeliness” rating for each stock. Follows approximately 1,700 stocks. Available from libraries, or from Value Line ($598 a year, 13-week trial subscriptions are $75 for the print version; 800-634-3583; www.valueline.com.)
The return on equity number is the company’s net profit after taxes, divided by its book value, and it can usually be found in the annual report. It shows how much the company is earning on the stockholders’ stake in the enterprise. If return on equity is growing year after year, the stock’s price will tend to show long-term strength. If the number is erratic or declining even though profits are steady, you may have uncovered problems with debt or profit margins and you should probably stay away.
VALUE SIGN #6: Consider companies that have debts amounting to no more than about 35% of shareholders’ equity.
The debt-equity ratio shows how much leverage, or debt, a company is carrying, compared with shareholders’ equity. For instance, if a company has $1 billion in shareholders’ equity and $100 million in debt, its debt-equity ratio is 0.10, or 10%, which is quite low. In general, the lower this figure the better, although the definition of an acceptable debt load varies from industry to industry. You’ll find data on debt in company annual reports, Value Line, Mergent Inc. and S&P publications, and in stock reports provided by the on-line services.
VALUE SIGN #7: Whenever you assume the risk that goes with an oversize beta, it
S&P Stock Reports offer a wealth of current and historical data covering the three major exchanges (NYSE, AMEX and Nasdaq) in three volumes that are updated every six weeks. The monthly S&P Stock Guide is a compendium of similar data on more than 7,500 stocks, but with no analysts’ commentary. The guide provides most of the hard data you need to check out a company. Available from libraries, brokers or by subscription from S&P (55 Water Street, New York, NY 10041; 800-221-5277; www.standardandpoors.com).
MERGENT PUBLICATIONS (formerly Moody’s Investors Service)
Mergent publishes eight Mergent’s Manuals containing current and historical data on thousands of companies. The Handbook of Common Stocks covers approximately 900 stocks, and the Dividend Record keeps track of current dividend payments of 30,000 U.S., Canadian and significant global securities. The Dividend Achievers guide is widely used by individual investors. Available from Mergent Inc. (Customer Care Center-Consumer Accounts, 10475 Crosspoint Blvd., Indianapolis, IN 46256; phone: 877-762-2974; fax: 800-597-3299; www.mergent.com).
FINANCIAL NEWSPAPERS
The stock listings of the Wall Street Journal, Barron’s and Investor’s Business Daily contain current information on prices, dividends, yields and price-earnings ratios, as do the stock listings of most daily newspapers. What sets these three apart is the accompanying depth of coverage of the investment markets. Available from libraries, at newsstands, online or by subscription.
COMPUTER ONLINE DATA BASES
America Online , CompuServe, MSN, Yahoo finance (finance.yahoo.com) and other dot-com portals offer plenty of stock and investment information, as do countless Internet sites, including kiplinger.com.
should be in expectation of receiving an oversize return. Probably the most widely used measure of price volatility is called the beta. It is calculated from past price patterns and tells you how much a stock price can be expected to move in relation to a change in the stock market as a whole (usually represented by the S&P 500, which is assigned a beta of 1.00). A stock with a beta of 1.50 historically rises or falls half again as much as the S&P index. A stock with a beta of 0.50 is half as volatile as the index; it would be expected to go up only 5% if the index rose 10%, or go down 5% if the index fell 10%. A few stocks have negative betas, which means that they tend to move in the opposite direction from the market. Betas are published by several stock-tracking services such as those mentioned on pages 6 and 7 and are usually available from a broker. The key to remember is that the higher the beta, the bigger the risk.