Author: mungofitch

Subject: Re: OT: barrons article on 500 companies ratings

Date: 5/7/2012

Recommendations: 1

A somewhat more philosophical answer is that there are no safe stocks, in the sense that all stocks and all stock portfolios can be assumed to drop in price by half once in a while. No-one should have any money in equities that there is any chance they will need in the next five years. Of course, that`s only price risk. If you are patient, the ONLY risk in owning a stock is a deterioration in the prospects of the underlying business. The greatest defense there is strong financials and a sustainable business model. So, any quant screening you do should start from that practical viewpoint. For the strength side you can actually do a lot worse than Value Line`s relevant ratings, Safety Rank and Financial Strength. Historically the top-ranked ones by financial strength (A,A+,A++) have done as well as the stocks in their full database and much more steadily. They don`t generally blow up. For business model sustainability, there`s not much you can do from a quant point of view other than filter out the businesses that have had historically high failure rates, low average returns, or occasional panics/blowups. It never makes sense to put money in airlines, for example. You`re way better off with things like drugs, cosmetics, oil, medical devices, hotel&gaming. Heck, if you just want some safe names, historically one also does well finding things with large allocations in the stock portfolio of Berkshire Hathaway ; ) Coke, IBM, Walmart, Wells Fargo, American Express, PG, Sanofi-Aventis, JNJ, USB, Tesco plc. Especially if it`s a position which they have added to or at least not reduced in recent years, and/or something they`ve made bullish comments about. Coke, IBM, Wells and Tesco would qualify on that account. Jim