| Researching a Stock on the Net |
Dateline: 11/09/98
This page is a step by step guide to researching a Canadian stock on the Internet. We'll use it to try and find the information needed to fill in the Value Investor's Worksheet we published here two weeks ago.
But before we jump in, let me tell you about a new regular feature at Investing (Canada) - The Pundit Report. It will be listed every week on the Main Page right under the link to the newest feature article. The report contains a random sampling of commentary from various analysts and writers on the net - either from emailed newsletters or from information on selected websites and will be updated regularly with fresh analyses. Take a gander and let me know what you think.
Researching a stock used to take a lot of leg work. Unless someone had a lot of time to devote to it, one used to have to rely on one's broker for such information. But with the Internet it is easier and faster and it is creating a whole new breed of investor - the investor who relies less on his broker for information and more on his own resources.
But there are pitfalls in the process. There is a lot of misinformation and even disinformation out there. Even cases of out and out fraud. Note the recent crackdown on con artists by the SEC. Information gleaned from the Internet should be treated with a certain amount of caution. That said, let's see how we can effectively use this great tool in researching a stock.
First you have to decide what stock to research. You can get ideas from your daily newspaper, from investment magazines, and even from the Internet itself. Suppose you remember reading about the Canadian Imperial Bank of Commerce's joint banking venture with Loblaw's and wondered whether the bank was a good buy. So you decide to check it out. Let's go through the processs step by step.
We'll use the Value Investor's Worksheet we created here two weeks ago as a guide to what information we want to retrieve. The first thing on the worksheet is pretty basic - name of company, address, stock symbol. Unfortunately, you don't know the stock symbol. The first place to go is Carlson Online. Carlson is a superb resource that let's you retrieve an array of links to information about any Canadian publicly traded company you want to examine. We keep a search box to Carlson on our Daily Quotes and Data page, but for now we'll reproduce it here.
Typing in "Imperial Bank" in the box above returns a page that gives you the following information:
Now not all companies get such an extensive return of information. But many do. Carlson doesn't give the address,so we follow the link to SEDAR, the database on corporate filings. That gives us CIBC's address.
Now we get into the nitty gritty - getting the relevant financial information on the company. First we want to get the stock price, P/E, and Dividend Yield.
We'll go first to Canada Stockwatch. We'll use the search form that retrieves stock quotes and is on my Daily Quotes and Data page. It is reproduced below:
Entering the Symbol for CIBC gives us the trading activity on five different exchanges. We click again on the symbol on the line for the TSE numbers which gives us a chart showing that CIBC is trading near its lows for the year, but rising. Clicking on the symbol again gives us the information below (modified slightly to fit our page format).
| Sym-X | Bid - Ask | Last | Chg | % | Vol | $Vol | #tr | ||
|---|---|---|---|---|---|---|---|---|---|
| CM - T | 16.0 | 31.60 · 31.70 | 4.2 | 31.60 | -0.30 | -0.9 | 1294.6 | 40988 | 1658 |
| Open-Hi-Lo | Year Hi-Lo | last trade | News |
|---|---|---|---|
| 31.65 31.90 31.25 | 59.80 24.40 | Nov 6 15:59 | Nov 6 |
| Name | EPS | P/E Ratio | Yield | Annual Div | Ex Div Date |
|---|---|---|---|---|---|
| CIBC | 3.16 Cdn | 10.00 | 3.80 | 1.20 Cdn | Sep 24 1998 |
We see from this that as of Nov. 6, the stock was trading at $31.60, its earnings per share are $3.16, its P/E ratio is 10.0, and the annual dividend is $1.20 with dividend yield of 3.80%.
Going to our worksheet we see that we also want to know the Earnings to Price Yield, the highest P/E for the last five years, the tangible book value for the company, the net current asset value, and for comparison, the AAA Bond Yield. After that we need the total debt of the company, the quick liquidation value, and the earnings history of the last ten years.
We can extrapolate the E/P because it is the inverse of the P/E. The P/E is 10.0, so the E/P is 1/10 or 10%. For the rest of the information we need to go elsewhere.
A good bet is the Wright Investor Services profile, so we go there. The link from Carlson takes us to an overview page that tells a bit about the company and how it's stock has fared recently. It is up 5.9% for the week, 20.0% for four weeks, but still down 32.3% for thirteen weeks. We may have a bargain here. But we want some financial data so we go to Wright's Analysis Summary which tells us that the highest P/E in the last five years was 11.7 and the book value was $21.10 per share at the beginning of the year. Going to the Earnings & Dividends Summary we get the earnings for the last ten years.
We still need a little more information, so we go now to CIBC's home page. We could go to SEDAR and retrieve the most recent interim financial statements (filed Sept. 8, 1998), but it is 16 pages of very tiny type in PDF format and we don't want to print out 16 pages.
Putting our mouse cursor over Discover CIBC gives us a drop down menu. We check out Shareholder News. The data there is not what we want so we go to the PDF file of the Third Quarter Report (the same one that's at the SEDAR site) and print off pages 1, 11, 12, and 13 of the report. This gives us what we need.
All that's left now is the AAA Bond Yield. For that we go to CIBC Wood Gundy's BIGAR™ Indices which shows the current yield to be 5.53% for the short term index.
Now we have all the information in hand and we complete our analysis of CIBC. The data is entered below.
The Value Investor's Worksheet
1. Earnings to Price Yield: 10.0% AAA Bond Yield: 5.53%
The earnings to price yield should be double the AAA bond yield. Earnings to price is the reverse of the P/E ratio. If a company has a P/E of 20, its E/P is 1/20 or 5%. If its P/E is 50, its E/P is 1/50 or 2%.
2. Current P/E Ratio: 10.0 Highest Ave. P/E (last 5 years): 11.7
The current P/E should not be more than be 40% of the highest P/E in the last five years.
3. Dividend Yield: 3.8% AAA Bond Yield: 5.53%
The dividend yield should be two-thirds of the AAA bond yield.
4. Stock Price: $31.60 Book Value: $21.10
The stock price should be two-thirds of the tangible book value of the company. Book value = (total assets - liabilities - stock issues ahead of common stock)/number of common shares.
5. Stock Price: $31.60 Net current asset value: ??
The stock price should be two-thirds of the net current asset value or net quick liquidation value. Net current asset value = Current assets - current liabilities.
6. Tangible Book Value: $21.10 Total debt: ??
Total debt should be lower than tangible book value.
7. Current ratio: ??
The current ratio should be 2 or more. Current ratio = Current assets/current libailities
8. Total debt: $263,439,000,000 Quick liquidation value: $264,545,000,000
Total debt should be less than the quick liquidation value.
9. Current earnings: $3.16 Earnings 10 years ago: $1.67
Earnings should have doubled in the last ten years.
10. Earnings history
(list EPS for each of last ten years)
1988: $1.67 1989: $1.14 1990: $2.02 1991: $1.97
1992: -$0.30
1993: $1.50 1994: $1.76 1995: $2.09 1997:
$3.02 1998: $3.51
Earnings should have declined no more than five percent in no more than two of the last five years.
On strict value investing principles using Benjamin Graham's Ten Attributes of an Undervalued Stock, CIBC is not an undervalued stock, but if you apply the analysis liberally, it may well be. As you recall, a stock has to meet seven of the ten criteria to be considered undervalued. CIBC almost meets # 1, so we'll count that one. It fails on # 2. It meets # 3. It fails on # 4. For the next three, I am not entirely certain which assets and which liabilities to consider in determining the Net Current Asset Value, the Total Debt or the Current Ratio, so let's be generous and consider CIBC to meet all of these criteria. It meets # 8 and almost meets # 9. If you consider ten years ago to be 1989, CIBC does meet criterion # 9, so we'll consider it met. And on criterion # 10, there were earnings declines from 1988 to 1989 of 31.7%, from 1990 to 1991 of 2.4%,and from 1991 to 1992 of 115.2%. Every year since then has seen a sizeable increase. Strictly speaking, criterion # 10 isn't met. But if you count ten years ago as being 1989, then the criterion is met except for that one really bad year of 1992. All of that year's loss took place in the second quarter, which leads one to think there might have been an extraordinary circumstance there.
CIBC meets 4 of ten criteria, and possibly seven if the ones I'm not sure about are met. And if we overlook 1988 and 1992, criterion # 10 is also met. So anywhere from four to eight criteria are met.
As noted in my article of two weeks ago, the Ten Attributes shouldn't be considered as gospel, nor treated as a formula. Other factors to consider are CIBC's proposed merger with Toronto Dominion Bank, its expansion into Loblaw's with the President's Choice Financial Services, and TD's expansion into Wal-Mart.
On top of that, Wright Investor Services gives it very high marks and market analyst Pat McKeough, a noted value investor, lists CIBC as a Buy in the March 1998 issue of The Successful Investor. At the time CIBC was selling at $45. If a savvy guy like McKeough considered it a buy at $45, it must be a pretty good bet at $31.60, especially since it seems to be recovering ground recently. I have not seen a recent issue of his newsletter so I don't know if he's changed his mind. Remember that with value investing we are looking at the long term potential. Pat also listed TD as a buy. You might want to run the TD Bank through the above research exercise to see how it compares.
On the negative side, Canaccord Capital analyst Brent Woyat urges caution with respect to bank stocks in this morning's (Nov. 9) Technical Research update. See my new feature The Pundit Report for details.
Our exercise in researching a stock has been successful. Other lesser known stocks may prove more difficult. The ultimate resources are Carlson Online, Canada Stockwatch, SEDAR, and, if they have a profile on the company, Wright Investor Services. Other stock quote services like Big Charts Canada could substitute for Canada Stockwatch. And the Exchange on which a stock is listed and the company's website, if it has one, are also useful sources of information.
Disclaimer: As with all my columns here, I should re-iterate a precaution. I am not a professional financial advisor. I am a financial journalist and editorialist. The views in these columns are my personal opinions. The author may hold interests in investments mentioned in this article.
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