Update on Index

After about 3/4 of the month of July, the S&P is up 6.2% while the index I created is up 4.1%. Not a great start, but it will literally take years to find out if this strategy works. One thing that hurts the performance compared to the broad market is that the index is pretty much devoid of financial stocks while happen to have had a good run, or cyclical materials.

Value Index

Tomorrow is the first of July, and we will begin tracking the Value Index. For purposes of this, only S&P 500 companies are eligible. This basically keeps the number of stocks to be evaluate to a reasonable number. The index will reconstitute at the end of each month. At any rate, these are the stocks.

AKAM, AMGN, BCR, BIG, BIIB, BMY, CEPH, CF, COH, COL, DO, ESV, FII, FLIR, FLS, FRX, GD, GME, GPS, HRS, HUM, JEC, JNJ, KG, LLY, LO, MDT, MRK, MSFT, NKE, NOV, PCP, PFE, PSA, RDC, RSH, RX, SYK, TSS, ZMH.

Without going into too much detail, the companies picked are those that are profitable and will remain so, can be bought at a good price, and have what I consider good balance sheets.

EBITDA Multiple

Looking at the Dow 30, and going with 6.5 as a standard for which to judge value, there are 4 stocks that are under that multiple. The EBITDA is TTM and EV is MRQ.

Chevron (CVX), Exxon (XOM), AT&T (T), and Merck (MRK) are the four. The oil companies are on the list because of EBITDA from April to Sept. last year. Even so Chevron makes the cut based on last 2 quarters as well. AT&T has a large capital requirement which of course is disregarded in EBITDA. Merck is just an all-around good value. For one the Enterprise Value is not much more than the Market Cap, and secondly it's PE is strong.

We'll open an index tomorrow with the 4 stocks and check performance compared to the broader market. EBITDA Mult.<6.5. No weighting; just 25% for each until the index is modified. Modification will come based on (1) a stock has increased in price or has released new financials and is no longer eligible or (2) a new stock is found to be included or a previously rejected stock has either decreased in price or released more favorable financials to make it qualify.

2 new valuations

Pfizer (PFE) has been rated and is the new best value company, replacing XOM.

Boeing (BA) came in lower, ranking between Microsoft and GE.

Continuing with New Ratings

Adding to the last post of ranking some leading blue chips. This second group has fared a bit better than the last.

1. XOM
2. CVX
3. INTC
4. JNJ
5. HD
6. MSFT
7. GE
8. BAC
9. JPM
10. WMT

Some more blue chip rankings

Looking at 5 large blue chips from different sectors, a new valuation standard results in the following rankings.

1. XOM
2. MSFT
3. GE
4. JPM
5. WMT

Value in the Dow

I've gone through a valuation of each Dow component. I then split them into 5 equal groups depending on how the market value of each compares to the calculated intrinsic value. Here is the list:

Best value: BA, HD, MRK, MSFT, PFE, XOM

Next group: CVX, DD, DIS, INTC, PG, TRV

Middle group: HPQ, IBM, MCD, MMM, T, VZ

Next group: CAT, CSCO, JNJ, KFT, UTX, WMT

Worst value: AA, AXP, BAC, GE, JPM, KO

So energy and pharmaceuticals, with the exception of JNJ, are near the top. Finance stocks are right there at the bottom-which is partially attributable to the methodology and also the result of the problems in the sector over the last year.