Expert: Paul Henneman - 7/6/2004

Question
I just received your email listing the top stocks as of 7/2/04.  I truly have to be missing something.  I have used your system for 2 years and find it excellent.  Of the list, in round figures, it seems the highest probability of gain is about 62% and the highest indicated gain in 6 months is a little under 13% (MICC).  One (CGA) indicates about a 54% indication of losing about 7% in 6 months.  I think KE has been merged into a different REIT.  When I screen I look for at least a 75% chance of gaining 20% in 6 months with a 4 or 5 Engine rating.  Very Confused.  Phillip L Roberts

Answer
Phil,
  Thank you for email and interest in ValuEngine!
  The top rated stocks in the list we sent out were computed based on our 'ValuEngine Engine rank'.  Every stock we cover is given a one through five rating, five being the best. The data points used to compute these ratings are fair market valuation, 1 year forecasted return, P/E ration, market cap, and momentum. The overall performance of 5 rated stocks has been very good.
  However, as you note, one thing we do not use in the computation of these ratings is the probability of gain figures. It is interesting that you mention this. ValuEngine has done alot of portfolio development where we use the fair market valuation and forecasted target prices in various ways to build an entire portfolio strategy. We can then backtest and track these strategies to see how they perform and what the volatility is. Much of this is available on the 'benchmark portfolio' page of valuengine.com  We have not incorporated the probability of gain in any of these strategies. There is no real reason for this, we just have not reached that point yet. It is a solid theory on how to use the ValuEngine research. Several other users in the past few months have contacted me asking about this, and what types of returns could be expected by using some sort of probability of gain screen, which sounds exactly like what you are doing.
  To make a long story short: the reason some of the stocks in our top rated list have less than desirable probability of gain figures is that we don't look at that for the ratings. But our research will take us there soon! You are essentially in 'unchartered territory' as far as ValuEngine is concerned as we have not tested portoflio strategies based on this, but that is not necessarily a bad thing. Have you seen good results thus far? I'm curious to learn more on how you use this.
  I hope this helps, please do not hesitate to follow up with me directly by emailing paul@ValuEngine.com

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com