Firms Offering Stock-Rating Services
Here’s a look at some of the stock-rating services offered by firms that say their research is free of conflicts that dog major Wall Street brokerages:
Charles Schwab Corp.
Product: Schwab Equity ratings, A-through-F grades for the 3,500 largest U.S. stocks, updated weekly.
How it works: Stocks are rated based on a computer-driven “quantitative” formula that grades on a so-called bell curve. The top 10% of stocks get A ratings, the next 20% get B ratings, the middle 40% are rated C, the next 20% get D and the next 10% get F.
The formula includes fundamental measures such as a company’s return on invested capital; stock valuation measures such as free cash flow per share; momentum measures such as earnings growth; and risk measures such as the stability of sales growth.
Cost: Free to Schwab customers
Contact: www.schwab.com, or (800) 435-4000
Morningstar Inc.
Product: Stock “star” ratings on about 500 major companies, with more being added gradually.
How it works: Unlike the firm’s better-known star ratings for mutual funds, which are based on past performance, Morningstar’s stock ratings attempt to gauge future prospects for shares.
Ranging from five stars (best) to one star (worst), the ratings are based on a “value” approach to investing: They compare a stock’s current price with Morningstar analysts’ estimate of the issue’s fair price. Stocks trading at 30% or more below the supposed fair price get five stars; those believed to be 10% to 30% undervalued get four stars, and so on.
Stocks also are rated separately for risk (low, medium or high) based on the company’s debt load, the consistency of its cash flow and other factors.
Cost: Premium Morningstar Web site membership, including access to all ratings, is $109 a year; some ratings are on the free area of the Web site.
Contact: www.morningstar.com, or (800) 735-0700
MSN Money
Product: StockScouter service, which rates about 5,700 stocks from “strong” to “poor” on a 10-point scale (10 is best), using a quantitative formula.
How it works: Stocks are rated daily based on their risk/reward outlook for the next six months. The system measures expected risk by looking at share price volatility over the last 12 months, and it measures expected return by looking at earnings growth and projected growth; insider buying and selling; price-to-earnings ratios; and recent share price trends.
Users can click on the latest list of 50 top- or 50 bottom-rated stocks, or look up ratings for individual stocks by ticker symbol.
Cost: Free
Contact: www.moneycentral.com
Standard & Poor’s
Product: S&P;’s weekly investing newsletter, the Outlook, highlights the firm’s new and revised “star” rankings on the 1,100 stocks covered by the firm’s analysts. Ratings range from five stars (best) to one star (worst), and seek to predict a stock’s prospects for the next six to 12 months.
How it works: Sales and earnings trends, debt levels and stock valuation measures such as price-to-earnings ratios are among the factors S&P; analysts consider when assigning star rankings.
The newsletter also highlights various screens, including five-star stocks with high “quality” rankings. Though not safety ratings per se, these separate quality rankings, which range from A-plus to D, measure factors such as the growth and stability of a company’s earnings and dividends over the last 10 years. Firms with high quality rankings are considered by S&P; to be the most solid.
Cost: $298 a year.
Contact: www.standardand poors.com, or (800) 546-0300.
Standard & Poor’s
Product: The weekly Value Line Investment Survey, the company’s flagship publication, covers and rates 1,700 stocks. Each stock report is updated quarterly, on a staggered basis.
How it works: Value Line is best known for its “timeliness” rankings, which rate stocks from 1 (best) to 5 (worst) based on expected appreciation over the next six to 12 months.
Earnings estimate revisions and valuation measures such as price-to-earnings ratios are among the factors that go into timeliness rankings, which are based purely on a mathematical formula (i.e., analysts’ personal views aren’t a factor). At any time, the 100 stocks ranked highest by the Value Line system are rated 1 for timeliness.
Value Line also issues “technical” rankings based on a stock’s recent price strength and other factors.
One method for narrowing investment ideas, according to Value Line, is to look for stocks with both timeliness and technical rankings of 1.
Value Line also publishes separate “safety” rankings for each stock--an assessment of a company’s financial health and share price volatility.
Cost: $598 a year for the main survey. The small- and mid-cap stock edition, covering 1,800 additional companies, is $249 a year.
Contact: www.valueline.com, or (800) 634-3583
Weiss Ratings Inc.
Product: Weiss Investment Ratings, updated monthly, weigh the prospects of roughly 7,000 common stocks based on their risk/reward trade-off.
How it works: The overall ratings, from A-plus (highest) to E-minus (lowest), are determined by two component ratings: a risk measure that gauges a company’s debt level, stability of earnings and other factors, and a performance measure that gauges cash flow growth, recent stock price strength and other factors.
Stocks with top overall investment ratings are considered to have the best risk/reward trade-off.
Cost: $7.95 per stock report online; $158 a year for monthly Safe Money Report, including stock ratings highlights; $458 a year for quarterly Weiss Ratings’ Guide to Common Stocks, including all ratings.
Contact: www.weissratings .com, or (800) 289-9222
