STOCK COMPARISON GUIDE (SSG)

By: Monir Lashgari

SSG is used when we are interested in choosing in more than one single company within one industry or several industries.

Under what circumstances might comparison be called for?

•	To consider a single stock and compare it to other contenders in the same industry to see if there are any better choices.

•	To select one from a group of stocks. You have studied a group of companies but have the money to buy only one or tow for the moment. You will want to know which of them to select.

•	To study an industry. You want to look at a particular industry that has attracted your attention to see which companies within it are the most attractive investments. Need to perform the quality and value checks on each of the companies to develop the data necessary for meaningful comparison.

•	To Select from among club choices to settle on the best prospect from among several presented to the group (Compare the trend in profit margins to determine whether each company is controlling its costs properly)

•	To decide whether to switch to a different stock to replace one stock with another that is of equal or better quality and that has a better potential for return.

•	Portfolio diversification

How to do stock comparison studies?

•	Computer, NAIC software, (spreadsheet program such as Microsoft Excel, other software)

•	Manual (on a piece of paper)

Criteria used for comparison

Criteria used for comparison are pretty much the same as those you used for your stock studies, although you may decide to incorporate additional criteria of your own.

1.	Quality issues (first priority): Growth and stability

2.	Value issues -Qualitative: are not the only useful comparative criteria

3.	Weigh those considerations in every case: Should we buy a company of suitable quality at a great price? Or should we buy a company of better quality at a less attractive price?

4.	Urgency: Can we afford to wait for the price to come down on a better quality stock?

5.	Informational, not quantitative: we are not comparing companies within a specific industry but we are looking for the best investment. Numbers are similar, the more secure and vital industry may still play a role in our decision.

BASIC CRITERIA:

QUALITY:

•	Historical sales growth-Growth rate for relevant years (higher)

•	Historical earning growth- Growth rate of earnings for relevant years (higher)

•	Future sales growth- Estimate of future sales growth (higher)

•	Future earnings growth- Estimate of future earnings growth (higher)

•	Sales predictability- Value of R2 (coefficient of determination), computerized (higher)

R2=1 (100%) all plotted points lie on the trend line

R2=0 None of the plotted points lie on the trend line

Manual: make subjective judgement about sales predictability based on your visual assessment of the degree to which the growth line approaches your goal of monotonous excellence.

10= indicate a perfectly straight growth line, and a1 would be assigned to a line that describes wildly fluctuating growth.

•	Earning Predictability: Evaluated in the same way as sales predictability (higher)

•	Average profit margin: Average of all available data- a minimum of five years (higher)

•	Profit margin stability: Evaluated subjectively in the same way as sales predictability (higher)

•	Trend in profit margin: Comparison of the most recent year's profit margin with the average profit margin. If the most recent year is higher than the average, the trend is up. (The more positive the better)

VALUE:

•	Current PE: Calculated using the most recent four quarters of earnings (lower)

•	Historical value ratio (HVR): Current PE compared to signature PE (lower if above 85)

•	Risk index: Risk of loss from decline in price, expressed as a percentage (lower)

•	Total return: Compounded appreciation and income if stock were to sell at high PE(higher)

•	Average return: Compounded appreciation and income if stock were at sell at average PE (Higher)

Miscellaneous Information:

•	Current price	(N/A)

•	Number of shares you can buy with the fixed amount of money (N/A)

•	Industry (N/A)

•	Exchange where stock is traded	(N/A)

**	Do not hesitate to list and prioritize additional criteria for making a better decision

(Debt to capital, Growth for the last quarter for EPS and Sales, %Institutional holdings, PE to projected EPS growth. A value below 1.0 would suggest good value)

**	Make sure to put the name and/or ticker symbol of the company at the top of the list

**	You may want to numerically prioritize them to prevent favoritism

**	Before selecting stocks to compare, eliminate any companies that fall below your baseline quality standards. Then determine what your objective is in making your comparison.

**	Should not compare more than five stocks otherwise it would be screening exercise rather than a comparison, and you will have a tough time selecting the winner.

**	Use the results from the completed SSG for each criterion in SCG table

**	Compare each of the variables, circling or otherwise marking the favorable values.

**	Be judicious about selecting the winners, ponder each item and make a conscious decision about its meaning and importance.

**	When finished marking the data, add up the marks and see which companies come out with the greatest number. Numbers serve only as a guide. It's important not to select a company simply because it's numerically superior to the others. Minor numerical differences are not important in weighing one company's performance against another.

**	Stocks's beta: Beta is a mathematical notation that measures a stock's volatility in comparison with the market as a whole. A beta rating of 1 indicates that the stock tends to move with the market, both up and down. Higher betas indicate greater volatility, and lower betas indicate that the stock is not influenced by overall trends as much as other issues. High betas are produced by high sales and earnings growth rates and excellent profit margins, items the investor has already covered in his or her guide study.

Material was derived from:

1.	Starting and Running a profitable Investment Club, Thomas O'Hara & K. S. Janke, SR. (P 109-120)

2.	NAIC Classic Plus (p 111-119)

3.	Take Stock, Ellis Traub (P 155-164)