Rational Investing: Internet sources can yield detailed stock ratios

Clark Davis is a 34-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money-management company.

Every now and then (more "now" than "then," my wife would probably say), I make things more complicated than necessary. That evidently was the case last month, at least according to a couple of readers who took me to task over the calculations in my column. One reader in (believe it or not) Plano, Texas, said something along the lines of, "Keep it simple, talk about the down-home investing stuff and don't get carried away with formulas and a bunch of math. It would help if you would just tell readers where to get the numbers you write about and then skip telling how to figure them yourself."

Thanks, Walter Wayne point well taken.

There are a couple of very easy ways to get the numbers, the PEG ratio, I wrote about last column. (A pause for an explanation for new readers. PEG was explained in detail in several earlier columns. It is the ratio created by a dividing a stock's price to earnings into its projected earnings growth rate. Questions about it? Send me an e-mail or check my previous columns archived on the SBJ Web site.)

For starters, one can use the Value Line Investment Survey, available in your broker's office or the public library. Although Value Line does not present a PEG in its analytical section, it does give projected earnings growth rate and the current PE. Yes, I know, that means you still have to do a calculation to determine a reasonable valuation for buying and one for targeted sell points, so Walter Wayne would not care for that, but what the heck, it beats doing the math I presented last month.

So here's an easier way: go to Yahoo! Finance on the Internet, enter the symbol of the stock in which you are interested, click on the choice "detailed" and bingo! there in the bottom middle of the matrix is the PEG.

Going further in Yahoo! Finance, click on "Research" under the stock's information matrix. That takes you to a wealth of data, including the PEG for the industry in which the company is categorized, enabling you to compare the company's PEG with the industry average.

You will still have to do a little math if you wish to establish a price at which you believe the issue would be fully valued for your risk tolerance, but at least you have the necessary figures in front of you.

The third way is the easiest by far: have your investment consultant/broker do it for you. That should be part of his service. If he doesn't offer that kind of service, you may have the wrong consultant/broker. If he doesn't know how to do it you definitely have the wrong one.

Suppose you don't have a particular stock in mind, but want to compile a list of buy candidates using the PEG method. There are any number of financial sites on the Internet that provide tools for doing that. Let's stick with Yahoo! Finance in this example. On the left side of the home page is a vertical listing of various functions. Under the heading "Investing" drop down to the second listing, Stock Research," and click on "Screener."

Now you are at a page that lets you enter parameters for all sorts of data. Set the minimum and maximum values for the screens you want to use. You don't have to use all of the screens, so if you want your starting point to be the PEG, plug in the numbers and let the computer do the rest. Let's say you want to look at purchase candidates that have a PEG of less than 0.5, but no greater than 1. Enter those values and hit the "Find Stocks" button at the bottom of the page.

Whoops, looks like there are several hundred. This example proves a point from an earlier column in which I discussed the use of multiple screens to bring your purchase list to a manageable size. Time to fine-tune the screen unless you really want to look at that many issues. Add other criteria, such as price limits, yield, average volume, or if you want you can take a big chunk out of the size of the list, by choosing to search within a particular industry. (For example, I just ran a screen for the restaurant industry using a PEG minimum of 0.5 and a maximum of 1 and produced a list of 18 issues that met the criteria. That's a starting point.)

Don't get me wrong. This is not the be all and end all of stock selection. It's just one factor that goes into the equation that can produce a disciplined method of investing.

I'm going to sit on the front porch tonight with an adult beverage in hand and ponder what Walter Wayne would think of this column.