Proven track record since 1965
Sophisticated investors rely on Value Line’s time-tested, performance-proven ranks to make investment decisions with confidence. The Value Line Investment Survey® is probably most famous for its time-honored Ranking System for Timeliness™, which ranks approximately 1,700 stocks relative to each other for price performance during the next six to 12 months, and Safety™, an overall measure of risk. The Value Line Technical Rank is designed to predict stock price movements over a three to six month time period. In each case, stocks are ranked from 1 to 5, with 1 being the highest ranking.
The Value Line Timeliness Rank measures predictive relative price performance of the approximately 1,700 stocks during the next six to 12 months on an easy-to-understand scale from 1 (Highest) to 5 (Lowest). Components of the Timeliness Rank include such items as the trend of relative earnings and prices, and earnings surprises. All data are actual and known. A computer program combines these elements into a forecast of the price change of each stock, relative to all of the approximately 1,700 stocks for the six to 12 months ahead. The Value Line universe of 1,700 stocks accounts for approximately 90% of the market capitalization of all stocks traded on the U.S. exchanges.
A second and crucial investment criterion is the Safety rank assigned by Value Line to each of the approximately 1,700 stocks. The Value Line Safety Rank measures the total risk of a stock relative to the approximately 1,700 other stocks. It is derived from a stock's Price Stability rank and from the Financial Strength rating of a company, both shown in the lower right hand corner of each page in Ratings & Reports. Safety ranks are also given on a scale from 1 (Safest) to 5 (Riskiest).
Technical, Industry and Value Line Indexes
The Value Line Technical rank uses a proprietary formula to predict short-term (three to six month) future price returns relative to the Value Line universe. It is the result of an analysis that relates price trends of different durations for a stock during the past year to the relative price changes of the same stock over the succeeding three to six months. The Technical rank is best used as a secondary investment criterion. We do not recommend that the Technical rank replace the Timeliness rank. As with the other ranks, the Technical rank goes from 1 (Highest) to 5 (Lowest).
Value Line also publishes Industry ranks, which show the Timeliness of each industry. These ranks are updated weekly and published on the front and inside pages of the Summary & Index. They also appear at the top of each Industry Report. The Industry Rank is calculated based on the Timeliness ranks of each of the stocks that have been assigned a Timeliness rank in a particular industry.
On June 30, 1961, we introduced the Value Line Composite Index. This widely recognized market benchmark assumes equally weighted positions in every stock covered in The Value Line Investment Survey, excluding the closed-end funds. That is, it is assumed that an equal dollar amount is invested in each and every stock. The returns from doing so are averaged geometrically every day across all these stocks in The Value Line Investment Survey and, consequently, this index is frequently referred to as the Value Line (Geometric) Average (VALUG). It was intended to provide a rough approximation of how the median stock in the Value Line universe performed.
On February 1, 1988, Value Line began publishing the Value Line (Arithmetic) Average (VALUA) to fill a need that had been conveyed to us by subscribers and investors. Like the VALUG, the VALUA is equally weighted. The difference is the mathematical technique used to calculate the daily change.
The VALUA provides an estimate of how an equal-dollar weighted portfolio of stocks will perform. Or, put another way, it tracks the performance of the average, rather than the median, stock in our universe. It can be shown mathematically, for all practical purposes, that the daily percentage price change of the VALUA will always be higher than the VALUG. The systematic understatement of returns of VALUG is a major reason that the VALUA was developed. Moreover, although the differences between daily price changes may seem small, the magnitude of the annual differential between the two averages can be very large. The greater the market volatility, the larger the spread between the geometric and arithmetic averages becomes.
In 1965, when the current Timeliness Ranking System was developed, our only market average was the VALUG, so we scored the ranks on a geometric basis. This allowed us to compare the performance of the ranks versus the market (as measures by the VALUG). After we started the VALUA, we began scoring the ranks both on a geometric and arithmetic basis.
Application of the Ranking System
Value Line’s flagship product, The Value Line Investment Survey, is most famous for its time-tested Ranking System for Timeliness™, which ranks approximately 1,700 stocks relative to each other for price performance during the next six to 12 months. Value Line has utilized this proprietary Ranking System since 1965, assigning ranks from 1 (Highest) to 5 (Lowest). Stocks that receive a Timeliness™ Rank of 1 are expected to show stronger price performance than the remaining stocks in the same time period.
At any given time, 100 of the 1,700 stocks are ranked 1, giving investors dozens of investment options. Stocks ranked 1 for Timeliness cannot be expected to outperform the market in every single week but, over a longer period of time, they may be predicted to do so as a group, as our actual results demonstrate.
Relative earnings and price growth over the past 10 years is a major factor in the Value Line Ranking for Timeliness. Companies whose earnings growth over the past 10 years has been greater than the increase in their stocks’ prices tend to be ranked 1 or 2. Other factors that influence the Timeliness ranking are momentum, quarterly earnings performance, and earnings surprises.
Value Line’s number 1-ranked stocks have appreciated 49,586% (before commission costs and before dividends) between April 16, 1965 and December 31, 2015 compared to an increase of 1,811% for the Dow Jones Industrial Average during the same period. Assuming ownership of the 100 stocks ranked number 1 out of the approximately 1,700 stocks in the Value Line Investment Survey, the portfolio, as a whole, would have appreciated more than 49,000%.
Although stocks ranked 1 and 2 for Timeliness can be more volatile than the market in general, and are frequently stocks of smaller companies, The Value Line Ranking System has consistently proven to be an effective approach to using investment research to the advantage of your portfolio.
While fortunes are won and lost in the stock market every day, over the long term, the stock market has outperformed all other investment options. Nevertheless, risk is always present.
Rank 1 (Highest): These stocks, as a group, are expected to be the best performers relative to the Value Line universe during the next six to 12 months (100 stocks of the 1,700).
Rank 2 (Above Average): These stocks, as a group, are expected to have better-than-average relative price performance (300 stocks). Since many stocks “stop in” at Rank 2 before moving up to 1, some investors’ strategy is to select equities from among Rank 2 and Rank 1.
Rank 3 (Average): These stocks, as a group, are expected to have relative price performance in line with the Value Line universe (approximately 900 stocks). They—and even Rank 4 stocks—may be considered if purchased for long-term appreciation potential and/or income.
Rank 4 (Below Average): These stocks, as a group, are expected to have below-average relative price performance (300 stocks).
Rank 5 (Lowest): These stocks, as a group, are expected to have the poorest relative price performance (100 stocks).
Changes in Timeliness ranks can be caused by:
- New earnings reports or company announcements
- Changes in the price movement of one stock relative to the approximately 1,700 other stocks in the publication
- Shifts in the relative positions of other stocks.
NOTE: Any one Value Line stock Rank is always relative to the Ranks of all other stocks in The Value Line Investment Survey universe of approximately 1,700 stocks.
While the Timeliness rank measures probably price performance during the next 12 months, the Safety rank measures the total risk of a stock relative to all others in the Value Line universe.
The Value Line Ranking System is an objective tool based on algorithms and unbiased investment research. By harnessing our proprietary methods, Value Line is able to provide easy-to-use investment research focused on major market movers. For investors who prefer in-depth, insightful, and independent research on industry leaders and the most heavily-traded stocks listed on North American exchanges.