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Computerized Investing > Third Quarter 2011

Standard & Poor’s Offerings

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by CI Staff

Standard & Poor’s (S&P) is one of the most widely recognized names in the investment community, providing investors with credit ratings, indexes and a broad range of investment research. AAII is able to provide members with several Standard & Poor’s offerings which can aid in your research process.

S&P Focus Stock of the Week

Every week, AAII highlights an S&P Focus Stock of the Week. These stocks carry Standard & Poor’s highest investment recommendation of 5-STARS, or strong buy. To navigate to this section of our website, click on the Investing tab from the AAII.com home page and select Markets from the submenu. You can also look for the S&P Focus Stock of the Week in our AAII Weekly Features email that is sent each Tuesday.

Standard & Poor’s presents a detailed analysis of and opinion on each focus stock. The report discusses any elements S&P believes are crucial to the company’s well-being and performance. Twelve-month target prices are presented based on various methods of calculation, along with an explanation of the methodology used for each calculation.

Beyond reviewing a company’s financials, the report also provides a detailed analysis of the industry. Specific factors affecting performance are identified, such as consumer spending or industry growth trends. The business profile lists the performance and outlook of each of the company’s business segments.

The company strategy and outlook section typically provides investors with an idea of the long-term plan that management has in place. Prospects for the main business segments are discussed, as well as changes that are being implemented to stay innovative and competitive. This section ends with a revenue and earnings growth projection for the next year and a discussion of the main drivers of the expected growth.

A separate valuation section explains the reasoning behind the valuations provided at the beginning of the report. The two main valuation approaches used are the relative price-earnings model and the discounted cash flow model.

Finally, Standard & Poor’s briefly discusses the company’s corporate governance practices, with comments on positive and negative elements. Any investment risks that may impact S&P’s recommendation and target price are also explained, and a final conclusion wraps up why the company is rated a strong buy.

The S&P Focus Stock of the Week provides valuable analysis and opinion for each covered company. Past focus stocks are all archived online as well.

S&P Industry Profile

To the right of the S&P Focus Stock of the Week on the Markets page, there is an S&P Industry Profile report for the focus stock’s industry. At the top of the report, you will see the average S&P STARS rating for the companies in the industry. Although the industry report is significantly shorter than the focus stock report, it provides an outstanding analysis on the industry that can be used as supplemental research.

S&P’s fundamental outlook on the industry for the next 12 months is given as positive, negative or neutral, and the report explains how this rating was arrived at. In addition, the report discusses issues that are pertinent to the industry—such as the mergers and acquisitions environment—as well as future economic trends affecting the industry. A comparison of performance figures for the industry against a composite index is provided.

An archive of past S&P Industry Profiles is also available.

S&P Stock Reports

Standard & Poor’s Stock Reports are among the most established investment research reports for equities. AAII provides members with free access to several hundred S&P reports on companies that have sponsored their reports’ distribution. In addition, stock reports are also offered for companies in AAII’s Model Shadow Stock Portfolio, a particular benefit since detailed analysis and expert opinion on micro-cap stocks are often hard to find.

S&P Stock Reports can be found by selecting S&P Reports from the Investing tab at the AAII.com home page.

S&P Stock Reports are comprehensive reports that include a wealth of financial information and commentary (Figure 1). The six-page reports provide key statistics and company financials, including per share data, income statement analysis and balance sheet data for the past 10 years. Growth rates and ratio analysis figures are also provided. A business summary explains the company’s overall operation and strategy and its financial trends and gives a profile of the firm’s market.

Unique quantitative evaluations include the S&P quality ranking, S&P fair value rank, fair value calculation, a volatility range, a technical evaluation and relative strength rank. In addition, a qualitative risk assessment is given.

A valuable part of each S&P Stock Report is its opinion on the company’s recent activities and S&P’s outlook for the stock as an investment. S&P also provides an in-depth outlook for the stock’s sub-industry, as well as a peer group comparison of the stock against its biggest competitors.

Select S&P ETF Reports

S&P reports are also provided for the exchange-traded funds (ETFs) in AAII’s Model ETF Portfolio. These reports are located in the Portfolio Research Tools section on the Markets page at AAII.com.

An overall ETF ranking (market-weight, overweight or underweight) is given to each ETF based on performance analytics, risk considerations and cost factors (Figure 2). In addition, a comparison to relevant peers is presented. The abundance of data provided includes performance and risk statistics, asset allocation and sector breakdown, and top 10 holdings. The usefulness of these reports cannot be understated. Not only do they provide you with a comprehensive look at each ETF, they offer the S&P’s outlook on the underlying market sector of each ETF and are a valuable tool to use when performing sector analysis.

S&P Indexes

Finally, AAII provides in-depth information on three S&P indexes: the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600. An overview describes the purpose of the index and the criteria used to select stocks for the index. The vital stats page shows industry breakdown, exchange representation, and the total and median market value and share price of the index. The constituents page gives the name and ticker for the stocks that currently make up the index.

S&P index information is found toward the bottom of the Markets page, under the heading S&P Indexes.


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