Meredith students outdo stock gurus
Class project beat S&P 500 index
Published: Sun, Dec. 16, 2007 12:00AM
Modified Sun, Dec. 16, 2007 05:30AM
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closeMeredith College senior Ashley Stiles has succeeded where many Wall Street investment managers fail: beating the Standard & Poor's 500 index.
For more than three months, Stiles and six of her Meredith business school peers have outperformed the index, which tracks 500 stocks and is widely considered a benchmark of U.S equities markets.
Their performance, though only a short-term victory, is still noteworthy. Less than half of mutual funds have bested the index over the past 10 years, according to investment-research firm Lipper.
DAMICO'S POINT SYSTEM TESTS A STOCK'S METTLE
Frank Damico teaches finance students at Meredith College a 10-point scoring system for selecting stocks. If a stock scores at least 7 points, that makes it a potential winner.
After selecting the stock, the investor will track the price, volume and news stories. If the price falls 5 percent, the investor should sell the stock and find a new one using the 10-point scoring system.
The system, as with every other under the sun, isn't foolproof. But here are some details on how it works.
SCORING CRITERIA
Technical analysis (5-point maximum)
Go to www.bigcharts.com. Enter the ticker symbol for the stock, looking at the daily price, trading volume, P/E (price/earnings) ratio, and 65-day moving average for the last 52 weeks. Compare the 52-week chart with the five "technical" requirements below, counting one point for each.
* Is the stock price at the highest level in the past 52 weeks; i.e. has it reached a "new high"? If yes, add one point.
* Is the stock price within 20 percent of the last two-week plateau? For example, if the last two-week plateau was averaging $100 per share and the current price is $119 per share, add one point.
* Is the current price greater than the 65-day moving average? If yes, add one point.
* Within the past 30 days, has the stock price jumped on very high trading volume? For example, if the average trading volume for this stock is 1 million shares per day, and the price jumped 25 days ago on 3 million shares traded, add one point.
* Is the P/E ratio in the lower half of the 52-week P/E range? For example, if the P/E ratio has been ranging from 10 to 20 in the past 52 weeks, and the current P/E is 10, 15 or anything in between, add one point.
Fundamental analysis (5-point maximum)
For any stocks hitting a new high for 52 weeks and scoring at least three points from technical analysis, go to the library and look at the Value Line stock reports. Compare the stock data/news with the fundamental requirements below, counting one point for each.
* Does the stock have a Beta value between 1 and 2? If yes, add one point.
* In the past eight consecutive quarters, are the earnings-per-share (EPS) increasing in at least six of the past eight quarters? If yes, add one point.
* In the past four consecutive quarters, are the earnings-per-share increasing from the previous year quarter? If at least three of the past four quarters are up from the previous year, add one point.
* Looking at the Value Line report or www.finance.yahoo.com, do you see any positive news on the stock in the past 60 days? For example, if the company just signed a big five-year contract with a large or financially stable company, add one point.
* Is the stock's industry ranking moving up in the Value Line weekly report? For example, if the stock is in the Electronics industry and this industry has moved from No. 25 to No. 10 in the Value Line weekly ranking, add one point.
FRANK DAMICO
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As part of the three-month course, each student invested a virtual $1 million in stocks and funds. Using a 10-point scoring system developed by their instructor, adjunct professor Frank Damico, the students analyzed trends in company shares, interpreted financial indicators and made judgments on the value of corporate news events.
A director unloading shares could mean a lack of confidence in earnings. A big merger could bump the price of the company getting bought. A discouraging drug trial could derail a product.
"I had no idea what a beta was, or how to evaluate a particular stock," Stiles said. "Now I see the prices rolling at the bottom of CNN screen and it means something, now that I've been an investor and have played the game."
Stiles, an accounting major and senior, "bought" New York-based drug maker Pfizer, whose drug Chantix made recent headlines and was a drag on her $1 million virtual stock portfolio.
"Cases of suicidal thoughts, aggressiveness, erratic behavior have emerged from this quit-smoking drug," Stiles told classmates during a recent investment presentation. "Not a good thing."
Stiles now recommends dropping the company, because its most recent performance data do not show positive trends.
Britt Stevens, who is completing an internship with UBS Financial Services in Durham, wants to put her class experience to work at a bank or money-management firm.
"I never knew how to research a stock to see if it's worth the time," Stevens said. "Now I know what to look at."
She had earlier noted a strong correlation between the price of eggs and the performance of one of her portfolio companies.
Damico, who designed the investment finance course, hopes the lessons will carry the students into fruitful financial careers.
Based on the success of his students, Damico will apply his 10-point scoring system to his 401(k) starting next year.
Damico, a mortgage consultant, created the system based on research while completing graduate business studies in New York.
"This will help them get better jobs and make more money," Damico said. "It totally differentiates them from other job candidates."
frank.norton@newsobserber.com or (919) 829-8926
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