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About ValuEngine
ValuEngine.com (VE) is a stock
valuation and forecasting
service
founded by Ivy League finance academics. VE utilizes the
most advanced quantitative techniques and analysis
available. Our research team continues to develop, test, and
improve the VE Stock Valuation Models and econometric models
for forecasting stock price movement. In recent years, VE
has expanded its
research program
to include portfolio construction and tracking products. Our
primary products are this website for individual investors
and ValuEngine Institutional (VEI), a software package for
equity fund managers and other financial professionals.
What ValuEngine
delivers to the individual investor:
Until recently, access to the
VE Institutional stock valuation, risk management, and
forecasting technology was only available to financial
professionals in the United States. Now, the individual
investor planning for their own financial future and
managing their own portfolio can utilize the same types of
tools that are used by financial professionals managing
billions of dollars in assets every business day.
Models, Research and
Testing
ValuEngine employs many
proprietary models based on the most innovative concepts in
financial theory from academia and Wall Street. ValuEngine's
Stock
Valuation,
Stock Forecast,
Portfolio
Forecast, and
Portfolio Builder models
utilize state-of-the-art valuation, forecasting, and
advisory technologies.
The ValuEngine Stock Valuation Model
The recent work of several Ivy
League scholars provide the intellectual theory behind VE's
Stock Valuation Model.
• Stock Valuation in
Dynamic Economies, Bakshi, Chen, 2001.
• A Generalized
Earnings-Based Stock Valuation Model, Dong, Hirshleifer,
2004.
• Stock Valuation and
Investment Strategies, Chen, Dong, 2001.
• Investing With a
Stock Valuation Model, Chang, Chen and Dong, 1999.
VE models are more
sophisticated than traditional valuation models and
outperform their peers. VE employs a three-factor approach
to stock valuation using fundamental variables--the
company's trailing 12-month Earnings-Per-Share (EPS), the
analyst consensus estimate of the company's forecasted
12-month EPS, and the 30-year Treasury yield--to create a
highly accurate reflection of a company's fair value. Armed
with these framework features, the ValuEngine Stock
Valuation Model then calculates the ValuEngine proprietary
"fair market valuation" for the stock.
Below are some of the
variables that are utilized when calculating the VE Fair
Market Valuation of a stock:
Firm-specific
variables:
• Long-run EPS growth
rate
• Duration of
Business-growth-cycle
• Volatility of EPS
growth rate
• Systematic or beta
risk of the firm
• Correlation between
the firm's EPS and the interest rate environment
• EPS growth volatility
• Dividend payout ratio
• Buffer earnings
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Interest rate related
criteria:
• Interest rate (30
year yield) long-run level
• Duration of interest
rate cycle
• Interest rate
volatility
The VE Fair Market Valuation
uses 12-month historic and forecasted EPS values and the
current 30-year treasury yield as primary determinants. When
calculating risk/return values such as the Sharpe ratio, the
historic periods used are five years.
Some expected results
of the VE Stock Evaluation Model's application are as
follows:
• The Valuation of a
stock increases in a declining interest rate environment.
• Increasing current
and/or projected EPS will produce a higher Valuation.
• While long-term EPS
growth would produce a corresponding long-term Valuation
increase, concomitant long-term interest rate increases
would offset EPS growth and depress the Valuation.
• The shorter a
company's own business cycle, the higher its stock Valuation
will be.
Reliability of the
ValuEngine Model
Every ValuEngine model has
been extensively back-tested in the United States equities
markets. The investment performance of each model has been
proven to exceed that of many well-known stock-picking
styles.
VE’s benchmark portfolio
results compared to common stock indices have posted strong
results, and serve as convincing indicators that VE’s models
and methods are robust and effective.
VE’s Engine ratings are based
on inputs from our models and allow for a simple comparison
of stock quality. The highest rating is a "5-Engine" which
is a considered a "strong buy" rating while the opposite is
a "1-Engine" or "strong sell."
Over time VE’s recommended
stocks provide much higher rates of return than either VE’s
"holds" or our "sells," which is just what should be
expected from a predictive quantitative model.
VE encourages you to examine
the live-tracked performance numbers and the current
representative stocks for each of VE’s popular Benchmark
Portfolios. And, the strategies being described here are
also summarized in VE’s Strategy Library (with additional
research results provided).
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The ValuEngine Stock Forecast Model
The predictive variables used
in ValuEngine forecasting models include: proprietary and
well-established forecasting variables derived from credible
financial research studies. ValuEngine uses a distinct
forecasting model for 6 time horizons and each of the 11
sectors that ValuEngine covers.
VE’s forecasting models
capture several important tendencies that stock prices
consistently exhibit:
• Short-term price
reversals.
• Intermediate-term
momentum continuation.
• Long-term price
reversals.
Short and long-term historic
factors in the VE valuation model's calculation include
past-valuation levels of the stock and its recent
price-momentum factor relative to other stocks. These
considerations, applied with the firm-specific variables,
allow the model to differentiate a stock across sectors and
within the company's own business-growth stages.
ValuEngine applies the
most-advanced statistical techniques to ensure that their
stock-return forecasts are as reliable as possible. In
addition, VE utilizes a realistic econometric model for
assessing the future-return prospects of every stock and
portfolio. This econometric model also estimates the
probability of a double in stock price as well as the
probability of meeting and exceeding any given stock or
equity portfolio investment target.
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The ValuEngine Portfolio Forecast Model
The ValuEngine Portfolio
Forecast Model utilizes our forecasting models to estimate
future returns for specific groupings of stocks, including
industries, sectors, indices, or custom portfolios. VE
computes the future-return forecasts for each stock and then
ValuEngine runs thousands of concurrent simulations for all
of the stocks in your portfolio (subject to various
econometric requirements). The VE Portfolio Forecast Model
then calculates the most likely return forecast based upon
the simulations.
The ValuEngine
Portfolio Builder
ValuEngine's Portfolio Builder
tool enables you to create a portfolio of stocks based on
one of the following long term goals:
• Maximize the chance
of meeting or exceeding an investment target.
• Minimize the chance
of loss
• Mix the above
objectives according to your level of risk tolerance
Choosing the first option will
prompt the Portfolio Forecast Builder to create an
aggressive yet risky portfolio aimed at maximum price
appreciation with the concomitant higher risk associated
with rapid growth.
Choosing the second option
will prompt Portfolio Builder to search for a conservative
mix of stocks that seeks to preserve capital.
Choosing the third option will
prompt Portfolio Builder to create a balanced portfolio that
will maximize potential gains and minimize potential losses.
Once you have specified an
investment objective, the VE Portfolio Builder will utilize
their forecasting models to estimate future returns for the
individual stocks in your portfolio. It will then examine
tens of thousands of possible capital allocation plans
distributed across the stocks within your current portfolio.
From the results of these simulations, the model will
identify and display the most favorable stock allocation
based upon your objectives. Additionally, the VE Portfolio
Builder will inform you of the exact number of shares to buy
or sell of each stock so that the resulting distribution
will increase your chances of maximizing gain, minimizing
loss, or both.
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Research Findings
Every ValuEngine Valuation and
Forecast model for the U.S. equities markets has been
extensively back-tested. ValuEngine's performance exceeds
that of many well-known stock-picking styles. The below
information contains research findings related to the U.S.
market. A great deal of additional performance information
is available by contacting ValuEngine.
After reviewing the back-test
results referred to on this page, VE encourages you to
examine the live performance
numbers. And, the strategies discussed on this page
are also summarized in VE’s Strategy Library.
Overview
The ValuEngine Research
Findings page explores the following research topics:
• Test Methodology
• Results for the VE
Forecasting Models
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Test Methodology
The back-testing of VE’s Stock
Valuation Model involves applying VE’s strategies to a more
than fifteen-year historical period. In order to maintain
the integrity of the back-test, great care was taken to
avoid survivorship bias, data-snooping bias, forward-looking
bias, or any other leakage of non-contemporary data into the
test. Only best of class, industry leading databases were
used including data from Thomson Financial and Standard and
Poor's.
In other words, VE’s back-test
of the valuation model used ONLY data that would have been
accessible by an investor or analyst at the instant on the
timeline when a stock was deemed to be overvalued,
undervalued, or removed from consideration. For example,
only the book/market ratio of each stock in March 1988 was
used to determine which stocks should be bought or sold on a
book/market strategy at that time.
This "out-of-sample" rule is
rigorously applied to each model or strategy being
researched. By "out-of-sample" tests, VE means that
ValuEngine never uses any information that was available
after a particular forecasting/portfolio-formation date to
determine how to conduct forecasting or how to invest on
that date. VE have done out-of-sample tests by running
out-of-sample forecasting-regression analysis and forming
investment strategies out-of-sample.
VE performs
forecasting-regression analysis and investment-strategies
analysis because they capture different aspects of the
model. The regression analysis shows the statistical
significance of the model's performance, whereas the return
numbers from the investment strategies show the economic
significance in dollars and cents. This allows ValuEngine
models to avoid situations where the statistical
significance is great but there is little economic value.
Results for the VE Forecasting Models
VE’s back-testing and
accompanying studies start from January, 1991. For detailed
historical performance on ValuEngine's library of
specific strategies, please visit
ValuEngine Portfolios.
For additional, generalized performance back-tests and
tracking, please visit VE’s Research Findings.
For historical performance of
Market Neutral strategies, please visit VE MNS Portfolios.
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Retain ValuEngine's
Services
As part of Investrend’s
Strategic Alliance with ValuEngine, inquiries made to
ValuEngine through Investrend include reduced fees, which
Investrend passes on to the inquirer, as well as value-added
services provided free of charge by Investrend. To arrange a
preferred introduction through Investrend, contact
Investrend at
resources@investrend.com
with "ValuEngine Introduction Request" in the subject line.
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ValuEngine's
Research Disclosure:
ValuEngine reports and analyses, as well as the opinions
stated therein, are based on ValuEngine’s independent,
objective viewpoints as long-term and highly respected
industry researchers, as well as ValuEngine's proprietary
analytical models. ValuEngine’s analyses opinions are based
solely on its long-term fundamental analyses of the
technologies, products, competitive positions and strategies
of each company as well as its understanding of market
trends and the economic environment. These opinions and
analyses should be taken into consideration by investment
managers along with other research materials as part of
their overall decision criteria. Financial data is provided
for reference only. ValuEngine does not participate in
investment banking activities/services. None of ValuEngine's
Partners are board members of any company covered by the
ValuEngine. ValuEngine performs no consulting activities
with any company in its universe.
ValuEngine does not own or trade in the stocks of companies
within its coverage domain, or those of any such competitor
companies. ValuEngine is paid by client-investors for
services and/or information provided, and that compensation
is in no way contingent on the effects, content or opinions
of the research or analyses ValuEngine produces, nor does
ValuEngine discuss or reveal any content or potential
content regarding its research prior to publication in such
instances where published content and/or information is
involved.
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Investrend-ValuEngine Relationship Disclosure:
Investrend's posting and/or distribution of ValuEngine
research reports and/or report summaries and/or other
technical analyses and/or ratings and/or valuations may lead
to the introduction of new business to/for ValuEngine by
Investrend. In return for Investrend's posting and
distribution of ValuEngine's information and/or materials,
ValuEngine provides distribution and/or visibility to/for
Investrend's information and/or materials, as well as
information and/or materials originating from other partners
and/or associates of Investrend.
In the event any ValuEngine business relationship has come
into existence as a result of Investrend's involvement --
and in the event any such business relationship(s) has/have
implications and/or connections to other companies,
entities, analyses or other considerations that may impact
(and/or have the perception of impacting) investment-related
activity, investors or other impressions on/by the financial
community -- both Investrend and ValuEngine do and will take
appropriate measures to assure such implications and/or
connections are openly and clearly revealed to the public.
Neither
Investrend nor ValuEngine -- nor any employees and/or
Officers of either Investrend or ValuEngine -- owns and/or
trades in the equities or otherwise holds a position and/or
has an investment interest in/of companies and/or competitor
companies covered by ValuEngine research. Additionally,
neither Investrend nor The ValuEngine -- nor any employees
and/or Officers of either Investrend or ValuEngine -- owns
and/or trades in the equities or otherwise holds a position
and/or has an investment interest in/of companies and/or
competitor companies of any companies and/or firms and/or
individuals that have any business relationship with either
Investrend or ValuEngine other than being covered by
ValuEngine research.
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