In cooperation with Chuck Carnevale, the creator of F.A.S.T. Graphs, I will be using his graphs, along with Morningstar star ratings, to adopt a new approach to the important step of stock valuation.
F.A.S.T. Graphs visually represent a stock's valuation in comparison to its fair or intrinsic value. The idea is to buy stocks "on sale" when you can, and avoid them when they are overpriced. Here, a picture is worth a thousand words:
On the chart, Johnson & Johnson's fair value is represented by the orange line, what Chuck calls the "earnings justified" value. The black line is JNJ's actual price. As you can see, the black line is a little below the orange line. In other words, JNJ is a bit undervalued at the moment. That makes it more attractive.
F.A.S.T. Graphs have been gaining popularity with Seeking Alpha readers, and you can see why. They are so easy to interpret. In this chart, called the "Estimated Earnings and Return Calculator," Chuck uses the historically common Price/Earnings ratio of 15 to draw the orange fair value line. The year 2012 is based on actual earnings for JNJ. The projections forward for five years are based on consensus analyst estimates for the expected growth rate in JNJ's earnings. You see a slow and steady growth rate of about 7% per year.
Each of the Top 40 stocks will have an image like the one above on its Easy-Rate(tm) Scoresheet. But (as they say on TV), Wait, there's more! Beneath each image will be a link to the F.A.S.T. Graphs website. Throughout 2013, you will be able to click on that link and go view a chart that is up to date as of the moment you click the link. With Chuck's kind cooperation, these links will be open and live all year!
In the coming edition, I have reduced the valuation factors to two: Morningstar's stars, and F.A.S.T. Graphs' charts. Morningstar updates their star rankings throughout the year, and F.A.S.T. Graphs are updated daily. So with just a couple of clicks, you will be able to derive an up-to-date stock valuation throughout the year. That's why I am so excited about this enhancement.
The eBook is proceeding swimmingly. Tomorrow (Saturday) we leave for Florida, to arrive on Tuesday, January 1 (2013!). After we get settled, it will take me 2-3 weeks to update everything with full-year information, double-check the whole eBook, and load it up. So I expect publication some time between about January 15 and January 22.
As last year, the first place that the 2013 edition will be available is right here. I will install a "buy" button here a couple of days before I can update my SensibleStocks.com website.
I will post another brief article when the eBook is available, with instructions on how to order it right from here (the blog site). It will be in the upper-right corner.
Happy New Year everyone!
Dave
