Month: March 2020

When so many stocks are down, which are undervalued? MacroRisk’s Relative Value Index can help.

Posted onAuthorGeorge Arzumanyan, CFA, CIMA(R), MAFF(R), CVA(R)

The COVID-19 virus continues to spread around the world and seems to have “infected” investors with fear and panic. The market’s volatility has spiked, and major indexes around the world have dropped from their recent highs. In times like these, panic and emotion seem to drive the market swings rather than the underlying economic conditions. Some financial advisors and investors might be trying to take money off the table before they lose more while others jump at this opportunity to purchase assets at fire-sale prices.

To assist financial advisors and investors with investment analysis, we will provide a list of 20 NASDAQ stocks with high market cap and estimate how overvalued or undervalued these stocks are using the Relative Value statistic provided by the MacroRisk Analytics® platform because a reasonable question always arises: is what I plan to purchase undervalued, overvalued, or fairly valued? While typical  analytics products emphasize accounting analysis or technical ratios to determine price valuation, the MacroRisk Analytics platform provides “a better window on the future”®.  Its patented and proprietary tools can help investors take emotions out of the investment decision-making process and focus on how the underlying economic values of their investments, including most stocks and funds traded in the U.S. and Canada.  Of particular note is the “relative value statistic” which presents the extent to which an asset is under- or over-valued; this statistic compares the Eta® price (i.e., MacroRisk’s statistical estimate of an asset’s intrinsic price) to the corresponding market price of the asset.

MacroRisk’s Eta® price estimate is computed using advanced data analysis and considers the specific impacts of these 18 macroeconomic variables:

  1. Short-term government bond yield
  2. Intermediate-term government bond yield
  3. Long-term government bond yield
  4. Corporate bond (BAA) yield
  5. Unemployment rate
  6. Corporate cash flow
  7. Housing starts
  8. Auto sales
  9. New durable goods
  10. Gold index
  11. Energy prices
  12. CPI (inflation)
  13. Monetary base
  14. M2 Money
  15. Euro exchange rate
  16. FTSE 100
  17. Tokyo stock exchange
  18. Agricultural exports

Similar to how factors such as the number of bedrooms, number of baths, square footage, etc. determine the price  of a house, these 18 macroeconomic variables determine the intrinsic value estimate, the Eta® price of an asset.

The relative value statistic is interpreted as follows:

Relative Value by MacroRisk Analytics Valuation Expectation
<1 Expected to be overvalued
1 Expected to be fairly valued
>1 Expected to be undervalued

To illustrate the relative value score, consider the following list of 20 large cap NASDAQ stocks and their corresponding relative value statistics as of 3/16/2020:

Name Symbol Relative Value as of 3/16/2020
CME Group Inc CME 1.361
Exelon Corp EXC 1.306
CSX Corp CSX 1.202
The Kraft Heinz Co KHC 1.161
Automatic Data Processing Inc ADP 1.131
Pepsico Inc PEP 1.128
Mondelez International Inc MDLZ 1.108
Microsoft Corp MSFT 1.102
Intel Corp INTC 1.099
Starbucks Corp SBUX 1.082
Apple Inc AAPL 1.078
Nvidia Corp NVDA 1.057
Intuit Inc INTU 1.043
Analog Devices Inc ADI 1.034
Equinix Inc EQIX 1.027
Qualcomm Inc QCOM 1.016
Comcast Corp CMCSA 0.962
Texas Instruments Inc TXN 0.949
Cisco Systems Inc CSCO 0.948
Marriott International MAR 0.943

According to the current economic conditions, even with all the current social volatility disrupting markets, 16 out of these 20 stocks presented seem to be potential buy targets because their relative value statistics are over 1; their market prices are substantially below MacroRisk’s statistically based  intrinsic values estimates.

During turbulent times that we are currently experiencing, it is ever more important to keep emotions in check while investing. The relative value tool statistic allows investors to take a step back from the speculation going on in the world and focus on whether an asset is expected to be under- or over-valued based on the current economy. The relative value information presented for 20 NASDAQ stocks above uses the underlying economic conditions expected to drive the values of assets over the long-term.

When you are considering changing your holdings, whether in a crisis or not, the Relative Value Index can help pinpoint undervalued opportunities.

www.MacroRisk.com provides relative value and other statistics as well as a selection of patented and  proprietary analysis tools for tens of thousands of stocks, mutual funds, ETFs, and other traded assets. The Relative Value Score for stocks and funds is also included in “The Economy Matters” reports available from numerous platforms.  Click here to see how MacroRisk Analytics can help you. 

Mr. Rolland Harris assisted with the preparation of this post.

The Economic Climate is Stormy for Most NASDAQ Stocks

Posted onAuthorGeorge Arzumanyan, CFA, CIMA(R), MAFF(R), CVA(R)

The market is getting whipsawed by negative news regarding the coronavirus and potential profit and supply chain disruptions, at the same time unemployment rates and interest rates are at record lows.  While the focus is largely on the public health disruptions, eventually the market will again focus on the economy and its impact on profits and growth.  Research by MacroRisk has shown that different companies have different responses to economic variables, and that the same set of economic conditions might be favorable for some companies and unfavorable for others.  The most valuable, and seemingly the most turbulent, stocks appear to be those on the NASDAQ.  In this report, we ask what the economic climate might be for NASDAQ stocks when the social angst calms down and investors care about profits, costs, and more mundane economic factors of investing.

Using the patented and proprietary tools available on the MacroRisk Analytics® platform, we will show the distribution of NASDAQ stocks that are currently expected to be suitable in the current economy to those stocks that are not. This can help investors and financial advisors understand what portion of stocks is expected to benefit from current economic conditions and which portion is not. It will help to answer the following question: what portion of stocks does the economy provide tailwind for, headwind for or is neutral for? This, in turn, can assist in understanding where the overall economy currently stands.

To demonstrate this, we use MacroRisk’s “economic climate rating (ECR)” based on its patented technology. This powerful rating measures the expected impact of the current economic climate for individual assets (including stocks, funds, and many others) over the next six to 12 months.  The ECR is a five-star scale where one indicates substantial economic storms in the forecast and five indicates positive tailwinds and a favorable climate.

As of 3/9/2020, the average economic climate rating is 2.2 for covered NASDAQ stocks (those with at least three years of trading history). Overall, the forecasted economic climate is somewhat unfavorable for NASDAQ stocks.  On the other hand, there are some NASDAQ stocks which seem to have their corporate sales perfectly trimmed to catch the economic breezes, and they receive a 5-star rating.

The distribution of the economic climate rating is presented in the following graph.  The graph below shows that there are more of 1- and 2-star stocks than 4- and 5-star stocks as of 3/9/2020.

The economic climate rating is based on each stock’s unique response to key 18 economic factors in conjunction with the current values of those factors.  The graph below shows the current economy expressed as “z scores”, that is in a way that adjusts for different magnitudes and different volatilities.  In the chart below, each bar shows the current economic value compared to its historical values.  The economic climate rating is computed using the current values and doesn’t include additional economic forecasting.

Given that there are more stocks for which the current economy is expected to not be suitable than those for which it is, investors might consider a more defensive approach to their portfolios. This analysis assumes that the economic factors will continue in their current directions. Alternatively, investors may choose to focus on those where the economy is most favorable.

The next table shows the top 10 NASDAQ stocks in terms of their economic climate as of 3/9/2020. In other words, these are the 10 stocks that are believed to be most undervalued according to the 18 macroeconomic factor MacroRisk model.

MacroRisk Analytics® research is available on Interactive Brokers through our “The Economy Matters®” reports.

MacroRisk Analytics also has a selection of proprietary analysis tools, including the economic climate rating discussed in this post, that use macroeconomic variables to provide information on tens of thousands of stocks, mutual funds, exchange traded funds, and other traded assets. Click here to see how MacroRisk Analytics can help you.