Value Identification Basics

Stock market analysis is generally conducted through two central disciplines: fundamental and technical. Fundamental analysis has two main subsets: the quantitative and the qualitative.

Quantitative generally refers to numbers, things that can be measured such as earnings, dividends, cash flow, payout, debt, and so forth. Qualitative generally refers to intangibles, characteristics that can’t necessarily be measured but nonetheless are important; for example, name recognition such as a company’s brand, management expertise, commitment to research and development, industry cycles, and so forth.

Technical analysis is considered by many to be the polar opposite of fundamental analysis. Whereas fundamental analysis involves analyzing the economic characteristics of a company in order to estimate its value, technicians are primarily interested in price movements because the fundamentals, they believe, have been fully factored into the price. Another definition would be the study of supply and demand in a stock or market to determine what direction, or trend, will continue in the future.

Generally, but not always, analysts tend to favor one discipline over the other. For many practitioners, there is simply no way for the two disciplines to co-exist. On the contrary, our approach is based on a combination of the two disciplines, which we call a fundamental approach to technical analysis. The Criteria for Select Blue Chip Stocks is how we identify fundamental quality, or what to buy. Our Profiles of Value, the study and identification of the historically repetitive patterns of undervalue and overvalue areas of dividend- yield, is how we identify value, or when to buy, sell, or hold.

Criteria for Select Blue Chips

The IQ Trends register of Select Blue Chips is an elite representation of the highest quality and most prosperous corporations in the country. According to our method, a stock will achieve the designation of Select Blue Chip after it has met at least five of the six following qualifications and may remain with four criterion.

  1. Dividend increases 5 times in the last 12 years
  2. S&P Quality Ranking in the “A” category
  3. At least 5,000,000 shares outstanding
  4. At least 80 institutional investors
  5. At least 25 years of uninterrupted dividends
  6. Earnings improved in at least 7 of the last 12 years.


The reason the term blue chip is reserved for only the highest quality stocks is that blue chip companies have a reputation for dependability as well as offering the best potential for increasing shareholder value through dividend growth and capital gains. There are at least 15,000 publicly traded companies in the U.S. financial markets. Common sense suggests that not all of them are blue chip stocks, or even companies that are worthy of investment consideration for that matter.

Although many blue chip companies are household names, an equal number, if not more, are not. There are also many stocks that are household names, but they are far from being blue chips. The point is it is important to have a mechanism or filter to eliminate the pretenders from the contenders.

Since 1966 we have used six criterions, which we call the Criteria for Select Blue Chips (our designation for the highest-quality blue chip stocks) , as a starting place for our investment considerations. When a stock has passed this filter for its qualitative characteristics, we then analyze it further to determine its historically repetitive areas of undervalued and overvalued dividend yield. At first glance these six criterions appear relatively simple, which they are; no rocket science here. When combined into one fundamental filter however, it effectively eliminates approximately 98% percent of the domestic publicly traded universe of stocks. To put that into further perspective, of the roughly 15,000 publicly traded companies in the U.S. markets, only 350 companies meet this criteria, and of those 350 we can establish clear clear-cut dividend-yield profiles for only 250 - 260 companies.

Learn more! Blue Chip Criterion Explanations

Investment Outlook

The Lucky 13

investment outlook from Kelley Wright 

The Investment Outlook can be found in each issue, and is where our Editor presents his thoughts on the general state of the markets, a specific stock or industry, or a discussion about value identification and our methodology.

Since assuming the helm as Managing Editor in 2002, Kelley Wright has penned the majority of commentaries, which have ranged far and wide afield. Whether didactic, philosophical or with a touch of whimsy, Kelley most definitely has never been one at a loss for words.

 

The Lucky 13 appears in the January issue of the newsletter and shows 13 stocks we think can outperform the market.

In short, The Lucky 13 has been extremely successful and not surprisingly, quite popular. While not every stock in each Lucky 13 portfolio has been a winner, there have been sufficient winners in each group to produce 15 years of positive total returns, twelve of which have exceeded 10%.

 

 

Whether you are looking to build a portfolio from scratch, are partially invested and looking to add new positions, or are fully invested and merely in need of some affirmation and hand holding, The Timely Ten presents our top ten recommendations as of each issue.

Short of utilizing the personal investment management services of our sister company, IQ Trends Private Client Asset Management, this is as close to real time as you can get.

About the IQT charts 

In each issue, with the exception of the first of the quarter, IQ Trends publishes four of our proprietary charts. These charts range from new entries into the Service, new entries into the Undervalued category or modified Profiles of Dividend Yield, companies in the Timely Ten, or companies that exhibit characteristics that show promise.

As a value added benefit to our subscribers, IQ Trends now allows access our archive of proprietary charts. No longer will subscribers have to wait for their favorite company to fall into one of the above mentioned categories for its chart to be published.