Expert: Paul Henneman - 12/1/2006

Question
How do you consider a stocks under/overvalued score when evaluating whether to invest in a 4 or 5 rated stock?  Is there research breaking out the performance of VE ratings by over/undervalued segments?  I am a new subscriber and I am really trying to square-up these two concepts!!!

Thanks!

Answer
Brent,
Thank you for your question and interest in ValuEngine!
The valuation is one of the five components that we use in determining the rating of a stock. We also use the one year forecasted target price according to the ValuEngine forecast model, momentum, p/e ratio, and market cap. Large cap stocks are more stable and predictable than small cap stocks, so the larger the market cap the better. However, you will often see highly ranked small cap stocks, meaning that the other four factors are strong enough to overcome this.
Unfortunately we do not have specific results for performance of the ratings based on valuation, but I see where you are going with this. It would be a sound idea to search the top rated stocks by valuation. There are after all over 80 five rated stocks, so your problem may be how to choose a smaller number out of that 80+ list. Selecting by either the forecasted return or valuation would both be sound ideas. This can be done in the "5-engine stocks" screening page, with the drop down menus at the top.

I hope this helps! Please do not hesitate to follow up with me if I can be of any additional service!

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