Wednesday, November 4, 2009

Sneak-Peek: Historical Series Metrics

Historical Data is difficult. It’s big. It’s often messy. It’s cumbersome to deal with more than a handful of series at a time. Price-histories are pretty well-handled in most financial information systems, but historical series data for Price/Earnings, EBITDA, 30, 60, 90-day implied volatility are usually a bit harder to get to.

Unless, of course, you have Bloomberg.

Bloomberg has one of the most impressive historical data systems on earth. Not many people realize this, but chances are good that if there is a metric (mnemonic) that yields a numeric data point for a security, Bloomberg keeps historical data on that metric. PE_RATIO, for example, can be tracked as easily as price-history. As can complex metrics like Volatility skews (1M_CALL_SKEWNESS).

As is so often the case, however, looking at one historical series can yield only so much information. What we really want to do is compare the properties of one series to another. For example, we may see that the P/E ratio of AMZN is at a historical high, but what of its peers in the sector (GOOG, SYMC, EBAY, MFE, YHAOO, EXPE)? Are their P/E’s also at historical highs? Does AMZN stand out?

We’ve been quietly developing some new tools to help answer questions like this for the next-release of AlphaVision™ for Bloomberg. We call this new functionality “Historical Series Metrics”. Today, I’m going to give you a sneak-peek.

The process for creating a Historical Series metric is similar to creating a filter metric or a calculation metric. Inside the Custom Metric Editor (Tasks -> Open Custom Metric Editor) you will find a new button labeled “New Historical Series Metric”.

Clicking this button will bring up the Historical Series Metric Dialog.

The historical Series Metric Dialog allows you to select the Bloomberg Metric (Mnemonic), the Date Range, and the series calculation type (Min, Max, Mean, Standard Deviation, Decile Latest, Percentile Latest). Above, you can see that I’ve selected PE_RATIO, I’m going to look at the historical time period from 8/4/2007 to 8/4/2009, and I am after the Percentile Latest, which will tell me what percentile of the last 2 years of data the latest value falls within. Let’s have a look.

Below is a screenshot of the Internet sector. AMZN clearly stands out. Why? AMZN’s P/E Ratio today (8/4/2009) is about 69.2. Our Historical Series Metric tells us that AMZN’s P/E Ratio today is in the 73rd percentile of all of it’s closing P/E ratios over the last two years.

What is even more interesting about this picture, however, is that AMZN is the only firm in the internet sector, whose P/E so high on a historical basis. Let’s look at this another way – what if we switch and look at the GICS Industry Group to which AMZN belongs: Retailing.

Whoa! That’s a surprise. Virtually the entire Retailing group is trading at its highest P/E’s in the last two years. Did you know that? I certainly didn’t. Right now, earnings in retailing companies are as expensive as they have ever been over the last two years.

PE_RATIO is quite interesting fundamental research data-point. But what about something a trader might look at day-to-day: Implied Volatility – Specifically CALL_IMP_VOL_30D.

In this image of all firms contained in the S&P 500, I’ve created a new Historical Series metric by cloning the PE_RATIO one and simply changing the metric to CALL_IMP_VOL_30D. I’ve set the color-bar to highlight the firms with the highest (green) and lowest (red) historical 30-Day Call Implied Volatility leaving those firms trading near their medians white. In general, one can see that very few firms are trading at historically high volatilities. Given the historic volatilities in the market a year ago, I think this makes good sense. If you are buying Vol today there’s a lot less out there to pick from. From this image, DYN, PCS, WPO, & CFN look like ones to keep an eye on.

Monday, October 5, 2009

IV90 Lows in ETF Market

Written By: Andrew Giovinazzi

Monitoring IV90 Lows in the ETF market and what that means for the broader Equity Market

Before the Meltdown of the last two days the major ETF Classes made IV90 (implied volatility of 90 days) lows or was within a few days of making those lows. The Equity markets are currently very close to year highs. The Implied Volatility in the market had gotten exhausted as the realized market volatility (HV) was underperforming on a broad basis. This pressure keeps pushing the IV90 lower as Implied Volatility comes in across the board. How does a trader or PM see that?

Earlier in the week the landscape looked like this…

On this landscape we are looking at several things- First each building represents an ETF (the landscape shows all ETF’s with traded options) and the footprint of each ETF is the end of day (EOD) volume with the SPY leading. The colorfield from red to green shows IV90 trading close to its lows (dark red with the SPY only .73 away from its IV90 lows of the year) and moving farther away from those lows from white to green. Of note is most of the heavily traded (large buildings) are very close to their IV90 lows signaling a new bottom across most of the ETF landscape. The active volume counts the most.

A new picture emerges as the market declines and IV90 starts to bounce off of its lows. This is the exact same landscape 3 days later.

Today, three days later the landscape looked like this….

Note here that the SPY HV90 is now 2.7 points away from its lows (about a 10% increase). The landscape is much “less red and more green” indicating that the market decline pushed IV90 up across the entire ETF universe as IV90 moves away from the yearly lows. The combination of short term Equity highs and IV90 lows is a signal to stay away from selling volatility in the farther out months until a move in the Equity markets occur.

Tuesday, May 19, 2009

It's All About the Consumer

Written by: Andrew Giovinazzi

Consumer spending comprises approximately 70% of GDP
The unemployment rate remains high and continues to grow
Personal savings as a % of disposable income is high, but for how long?

I started with an idea on consumer spending and let AlphaVision™ show me how the market reacted to the sectors shown below after the recently updated Chain Store Sales[1] report. Sometimes simple investment concepts require simple analysis. The investment community has been focused on financial institutions (rightfully so, I might add) and the end of civilization as we know it; however, the truth is, it’s all about the consumer. Overall, financials have made sharp gains in 2009, most of them after investors digested news on banks’ stress tests and Bernanke’s optimistic expectation that the economy would recover late this year. Since short-term financial plays have been realized, what’s next? To answer this, let’s focus on consumer spending.

To see potential consumer targets (and investment targets) I looked at two sectors: Retail - Discount Stores and Retail - Drugs, the two largest outliers responsible for improvement in the Chain Store Sales report. Using AlphaVision™, I scaled these two sectors for YTD price % changes.

The metrics reveal that Wal-Mart’s (WMT) price is down nearly 7% YTD while Family Dollar (FDO) has gained over 25%. Relative to the S&P 500, FDO has gained over 38%. In the retail drugs sector, Rite-Aid (RAD) and Walgreens (WAG) seem to be making the most noise. RAD gained about 29% and WAG is up 11% YTD. Using AlphaVision’s Metric Scout [see screen shot below], I pulled a side-by-side view of YTD, YTD relative to S&P500, and month-to-date price % changes. Looking at month-to-date percent changes, it appears the retail drugs sector has made impressive gains recently and therefore, does not look as attractive[to buy] as the retail discount stores.

If the economic recovery isn’t realized as soon as Bernanke thought, consumers could continue to substitute large scale discount retailers with dollar stores. Perhaps going long FDO (and/or DLTR, Dollar Tree) and shorting WMT is a good strategy. If the worst is over and the bottom is struck, consumers will “gradually” make their way back to WMT – remember to keep an eye on personal savings and unemployment. This scenario would suggest going long WMT and short FDO. In either case, consumers will never completely stop shopping at retailers such as WMT. While I am not as optimistic about the recovery as the Federal Reserve, I believe FDO is poised for a pullback given its YTD upswing relative to other stocks in its sector. Shorting FDO and going long DLTR could be a good relative value play, or for the long-term value investor, simply going long WMT could make sense.

[1] Source: Moody’s and the International Council of Shopping Centers

Tuesday, April 14, 2009

I love the StockTwits…

Written by: andrew.giovinazzi

It is fascinating stuff to an old option trader. Mostly because it helps monitor the flow and velocity of all market participants. Thank you web 2.0.

To that end my growing company, Aqumin, has created a TweetScore (High TweetScore in Blue and Green, low in red, sorted by Stock Volume) to combine what is Twittered about with real-time information. For me I call this a leading (contra) indicator. Not perfect, but a great source of ideas.

What I like about AlphaVision is I can take a Tweet and find the other trade. For instance look at Amazon (AMZN) which produces a very high TweetScore. Everyone is talking about it and it is a great company but it trades at a crazy multiple (50+P/E). I have seen enough to know that the new buzzwords “cloud computing” (used to be Railroads, Internet, Biotech, Xerox….etc) scare me with these kinds of names. Not that AMZN cannot go higher but give me something else to buy. So I use AlphaVision to find something in the same sector. Netflix (NFLX) pops up but that is no bargain either in the single digit P/E world. But Ebay (EBAY) sticks out. The market hates it (underperformed the S&P 500 of the last 52 Weeks) and trades like a utility (10 P/E).

What is unique about AlphaVision is that it compares names and not just screens them. The whole world is looking a spreadsheet of screens. What the market participant needs now is a way of looking at multiple names, in real time with all transaction data, at one time. Let everyone else screen, with AlphaVision you can compare across multiple sectors and price feeds with various types of data. Now is the time to do something different.

Take a look at Net Margins over the trailing 12 months (TTM). Ebay is 4x as efficient but trades at 1/5 the multiple. With AV this makes the trade much easier.
That is how eBay (EBAY) popped up. No Tweets love it. But it is standing right next to Amazon (AMZN) and that is where the opportunity lies. Buy what everyone else wants (which is good for now) or buy one of the best monopolies on the web for the price of your electricity provider and get Skype in the process.

I am buying eBay (EBAY) tomorrow and holding it until they make big money on Skype. Amazon (AMZN), good company, but it does not have a history of defying gravity forever.

Monday, April 6, 2009

Dipping a toe into the financial waters...

Written by: Andrew Giovinazzi

We go back to the past in terms of marking financial assets as the FASB (Financial Accounting Standards Board) hits the redo button. While there are solid arguments on both sides for relaxing or not relaxing the accounting standard (Steve Forbes will be happy) market liquidity and “fair value” are linked. Right now, there is no liquidity in these asset markets but there are real assets underpinning the securities. Without an active secondary market Mark-to-Market is a guess.

In mature markets with central clearing functions (for example: the OCC handles the clearing function for the option markets which are no stranger to volatility) this is a non issue. Every security closes with a bid and offer that a regulated, properly capitalized market participant is willing to make. Changing FASB is a half solution until a more permanent central clearing function for asset backed securities (ABS) can be established or the USA will be revisiting this problem very soon.

Short term this looks like a halt to the balance sheet rot of the last 12-18 months. While I am not ready to wade into the single digit Banking names just yet I think it is worth focusing on the best financial names now. Here I will use my Solid Dividends and apply it only to all names finance or finance related.

I will sort the market first by Financial Names to narrow down the range. In this case I am looking only at the top end of this group (Blue Stocks). I have sorted by Market Capitalization (big ones) to better see my choices in Big Cap and Small Cap names for a more informed view of how this metric produces results.

The names that stand out are:

The Chubb Corporation (CB)
McGrath RentCorp (MGRC)
Northern Trust Corp (NTRS)
Brown & Brown (BRO)
Royal Bank of Canada (RY)
Wells Fargo & Company (WFC) (from an earlier column)

There are several banks that fit the criteria but most are too small for what I was interested in. Since I think the new FASB standard is marking a market bottom of sorts, my next column will focus on the single digit numbers that look poised to gain from the new accounting largess. Using AlphaVision should give me those names in about 5 minutes but you will have to wait until next week for a look.

Friday, March 6, 2009

Digging for Dividends

Written by: Andrew Giovinazzi

While the market falls to multi-year lows (not today though!), and the demand for Treasuries is out of sight, the contrarian in me wants to find an alternative. I want to find companies that pay good dividends and have the solid cash flow to keep paying them. I want better than the 30 year yield on Treasury Bonds and stocks that are on or near their 12-month lows.

Commodities and affiliated industries fit the bill right now. With oil and most commodities in the basement (except gold) it is worth looking at this group in detail. I will sort the market for stocks that fit this description and rearrange the landscape for my custom metric "Solid Dividends".

My metric focuses on steady history of dividend payouts, EPS growth and strong cash flow coverage. I run my metric across commodity stocks - and there are quite a few standouts (in blue). The next step is to sort by stocks closest to their 12-month lows which in our example are closest to the left hand edge of each sector. Most of my top picks happen to be trading close to their 12-month lows even though only 2 of the 6 metrics are price related (Dividend Yield, 5 year Avg and Dividend Yield).

By looking at the Dow Jones News History, I found that these companies h ave either recently raised or reaffirmed their dividend or bought back shares. Simple but nice confirmations and you can get them on or near their lows.

MRO - Marathon Oil Corp.
CVX - Chevron Corp.
CRS - Carpenter Technology Corp.
CRR - CARBO Ceramics Inc.
RPC - RPC Inc.

Wednesday, February 4, 2009

Super Values Today

Written By: Andrew Giovinazzi

Let's start by using the standard metrics for value, Low P/E (in this case Enterprise Value/EBITDA for debt conscious times), Low Debt/Equity and a Price to Book around .8. I am looking for at least a 7% Net Income Change for companies that grow in difficult times. My new SuperValues metric would look something like this.

Next I limited my view by market cap to $2 billion or greater to see if there is any differentiation in the upper market cap tiers. Since cash or lack of it is an overriding factor, I want to sort the SuperValues metric results by TTM Growth in Cash from Operations. Stocks in Green scored very high (700+ of 1000) with most in the Mid and Large Cap range. Those on the outer edge (lower left) have very high growth in Cash from Operations. Some companies manage to do well on both the value side and growth in cash from operations.

Stocks of note are:

Wesco Financial Corp (WSC)
Thermo Fisher Scientific (TMO)
Apple, Inc. (AAPL)
CME Group (CME)
National-Oilwell Varco, Inc. (NOV)
Ensco International Inc. (ESV)
Avnet, Inc. (AVT)

After switching to a sector view [below] it becomes quite clear that we are diversified across the market. The issues identified using SuperValues metric lead or are close to leading in their sector with concentrations in certain sectors that might warrant a closer look.

The market in general is not making a distinction between leaders in Value and Cash from Operations. In fact (and what we are looking for), our SuperValues portfolio has underperformed the market by a good margin and this is where the opportunity lies for the patient investor.

Monday, January 19, 2009

13 Week Winners and Losers

Written By: Andrew Giovinazzi

By clicking on the 13 Week Price Pct Change Quick View (provided in AlphaVision), well performing sectors stand out. The better a stock performs, the greener it is, the poorer the performance, the redder it is. Sorting just the Big Caps ($2 billion or more) and changing the scale to 13 Week Price Pct Change reveals a few key sectors: Electric Utilities, Precious Metals, Educational Services, Re-Insurance and Drugs.

Flip the landscape to see the market laggards.

The poor performing sectors that continue to make new lows (after September) are: Banks, Investment Services, Financial Services (Diversified) and Automotives. While Wells Fargo (WFC) has been profitable through the financial crisis, it is now performing like the rest of the group.