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.
Ranking System Defined
- (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).
- (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.
- (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.
- (Below Average): These stocks, as a group, are expected to have below-average relative price performance (300 stocks).
- (Lowest): These stocks, as a group, are expected to have the poorest relative price performance (100 stocks).
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 stocks. The returns from doing so are average 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.
Depend on our Timeliness™ Rank to anticipate a stock’s relative price performance potential for the coming six-to-12 months, while you keep your eye on volatility through our Safety™ Rank. History has shown that investors in our top ranked stocks have been consistently rewarded with above-average returns. Financial Strength and other Value Line ratings help you fine-tune your insights so you can make smarter decisions.
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.
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.