a structured approach to investing using toolkit 6

Doug Gerlach - A Structured Approach to Stock Analysis October 2009

1

A Structured Approach to A Structured Approach to Analyzing Company Analyzing Company

Fundamentals with Toolkit 6Fundamentals with Toolkit 6

Presented by Doug GerlachPresented by Doug GerlachPresidentPresident, ICLUBcentral, ICLUBcentral

[email protected]@iclub.comhttp://www.iclub.com http://www.iclub.com

1

About Our Stock Analysis SoftwareAbout Our Stock Analysis Software•• For For investorsinvestors, not traders, not traders•• Based on premise that companies that increase EPS Based on premise that companies that increase EPS

will will eventuallyeventually see share prices growsee share prices grow•• Uses fundamental, longUses fundamental, long--term analysisterm analysis•• Based on identifying underlying characteristics of Based on identifying underlying characteristics of

growthgrowth and and qualityquality•• Provides framework for structured sell decisionsProvides framework for structured sell decisions

2

An Introduction to Toolkit 6

by Doug Gerlach, [email protected]

mailto:[email protected]


http://www.iclub.com

http://www.iclub.com



2

Program HistoryProgram History•• Long legacy of development:Long legacy of development:

–– Version 1.0 released in 1991Version 1.0 released in 1991–– Version 6.0 released in 2008Version 6.0 released in 2008–– Version 6.4 released in 2010Version 6.4 released in 2010

3

What’s New in Version 6?What’s New in Version 6?•• Streamlined toolbarStreamlined toolbar•• Mini SSG graphs pop up in library & Mini SSG graphs pop up in library &

Comparison headerComparison header•• Additional graphing: free cash flow, Additional graphing: free cash flow,

book value, net income, debt, shares book value, net income, debt, shares outstanding, dividendsoutstanding, dividends

•• Plot future FY EPS & Sales estimates on Plot future FY EPS & Sales estimates on graphgraph

•• “Default Judgment” applies conservative “Default Judgment” applies conservative values to all judgment itemsvalues to all judgment items

•• 25/50/25 zoning now default25/50/25 zoning now default•• Display debt/equity trend in Section 2Display debt/equity trend in Section 2•• Use 10Use 10--year P/E Ratios by defaultyear P/E Ratios by default•• Implied growth rate displayed on EPS Implied growth rate displayed on EPS

Growth judgment windowGrowth judgment window

•• Smart data updater alerts you when Smart data updater alerts you when new data is availablenew data is available

•• Preference to use beginning year, ending Preference to use beginning year, ending year, or average equity in ROEyear, or average equity in ROE

•• Display & print “preferred procedure” Display & print “preferred procedure” on SSG graphon SSG graph

•• Display Quality & Sector in SSG headerDisplay Quality & Sector in SSG header•• EPS & Sales growth REPS & Sales growth R22 displayed on displayed on

Page 1Page 1•• Integrated web links never out of dateIntegrated web links never out of date•• Read community messages about your Read community messages about your

stock on StockCentral message boardsstock on StockCentral message boards•• Section 3 “Additional Items” better Section 3 “Additional Items” better

organizedorganized•• Additional Low Price OptionsAdditional Low Price Options

4





3

New for StockCentral SubscribersNew for StockCentral Subscribers•• “First Impression” screen when you load a new company“First Impression” screen when you load a new company•• Complete Roster displayed as portfolio, automatically Complete Roster displayed as portfolio, automatically

downloaded each week into programdownloaded each week into program•• Upload completed studies to StockCentral for peer Upload completed studies to StockCentral for peer

reviewreview•• Take Stock EPS growth rate estimate displayed on EPS Take Stock EPS growth rate estimate displayed on EPS

Growth Judgment windowGrowth Judgment window•• Take Stock Quality Rating displayed in SSG page headerTake Stock Quality Rating displayed in SSG page header

5

33--Step Approach to AnalysisStep Approach to Analysis1.1. Assess Company GrowthAssess Company Growth

–– Strength & consistency of past EPS growthStrength & consistency of past EPS growth–– Determine likely future EPS growthDetermine likely future EPS growth

2.2. Review Company QualityReview Company Quality–– Stability of margins, ROE, debtStability of margins, ROE, debt

3.3. Determine ValuationDetermine Valuation6





4

1. Assess Growth1. Assess Growth•• Focus on operating earnings (eliminate nonFocus on operating earnings (eliminate non--

recurring events).recurring events).•• Is historical growth of EPS & Sales consistent?Is historical growth of EPS & Sales consistent?

–– Review RReview R22 at bottom of Stock Study.•• Is historical growth strong enough for size of Is historical growth strong enough for size of

company?company?7

Project Future EPSProject Future EPS•• What is likely future EPS growth for company?What is likely future EPS growth for company?•• Incorporate external information with your Incorporate external information with your

own judgment:own judgment:–– LongLong--term analyst estimates term analyst estimates –– NearNear--term analyst estimatesterm analyst estimates–– Implied (sustainable) growth rateImplied (sustainable) growth rate–– Company guidanceCompany guidance–– Other researchOther research

8





5

Refine Your EPS EstimateRefine Your EPS Estimate•• Construct Construct RevenueRevenue--Based EPS Model Based EPS Model

(streamlined analyst technique).(streamlined analyst technique).

9

2. Review Company Quality2. Review Company Quality•• Review Trend and Average of:Review Trend and Average of:

–– PrePre--Tax Profit MarginsTax Profit Margins–– Return on EquityReturn on Equity–– Debt to EquityDebt to Equity

•• Compare to Industry Averages & Peers.Compare to Industry Averages & Peers.

10





6

3. Determine Valuation3. Determine Valuation•• Review Historical P/E Ratios & Yield.Review Historical P/E Ratios & Yield.•• Determine likely ranges of P/E Ratios Determine likely ranges of P/E Ratios

in future, given assumed company in future, given assumed company growth rate.growth rate.

11

Analyze Reward & RiskAnalyze Reward & Risk•• Not enough to buy a good company, must Not enough to buy a good company, must

buy at right price.buy at right price.•• Is there enough reward compared to risk if Is there enough reward compared to risk if

purchased at current price?purchased at current price?

12





7

Total Return AnalysisTotal Return Analysis•• Does Projected Total Return (from Does Projected Total Return (from

dividends, price appreciation, P/E dividends, price appreciation, P/E expansion) meet your objectives?expansion) meet your objectives?

13

Library & PortfolioLibrary & Portfolio•• Save stock studies to librarySave stock studies to library•• Export stock study in *.SSG format to share Export stock study in *.SSG format to share

with other userswith other users•• Create & manage multiple portfoliosCreate & manage multiple portfolios•• Create & manage multiple librariesCreate & manage multiple libraries

14





8

Manage Your PortfoliosManage Your Portfolios•• Portfolio Report Card provides:Portfolio Report Card provides:

–– Overview of fundamentals of current Overview of fundamentals of current holdings.holdings.

–– Access to deeper evaluation.Access to deeper evaluation.–– Eliminates need for oldEliminates need for old--fashioned & fashioned &

complicated paper forms.complicated paper forms.15

Portfolio OverviewPortfolio Overview•• Metrics on state of holdings.Metrics on state of holdings.•• Overview of key metrics for each stock.Overview of key metrics for each stock.

16





9

Portfolio AlertsPortfolio Alerts•• Knowing when to sell:Knowing when to sell:

–– DefenseDefense: Get early warning signals if : Get early warning signals if conditions change for the worse.conditions change for the worse.

–– OffenseOffense: Sell holdings with limited upside : Sell holdings with limited upside potential.potential.

17

Challenge Existing HoldingsChallenge Existing Holdings•• Don’t merely sell Don’t merely sell –– replacereplace holdings with holdings with

prospects that offer higher quality/better prospects that offer higher quality/better returns.returns.

•• Consistently strive to Consistently strive to upgradeupgrade your your portfolio.portfolio.

18





10

Portfolio ReportsPortfolio Reports•• Provide more information.Provide more information.•• Are current holdings indicated as potential Are current holdings indicated as potential

buys?buys?•• Are fundamentals deteriorating?Are fundamentals deteriorating?

19

Additional FeaturesAdditional Features•• Quarterly trend analysis.Quarterly trend analysis.•• Graph additional items.Graph additional items.•• Compare stocks.Compare stocks.

20





11

Data SourcesData Sources•• Can enter historical data by hand.Can enter historical data by hand.•• Or subscribe to data feed:Or subscribe to data feed:

–– BetterInvesting/S&PBetterInvesting/S&P–– StockCentral.com/MorningstarStockCentral.com/Morningstar–– AAII/Reuters (CDAAII/Reuters (CD--ROM only)ROM only)–– Value Line (CDValue Line (CD--ROM only)ROM only)

21

For More InformationFor More Information•• Download a free 30Download a free 30--day demo at day demo at

http://www.iclub.com/tk6/http://www.iclub.com/tk6/•• Call 1Call 1--877877--3333--ICLUBICLUB•• Buy at today’s event and save off full Buy at today’s event and save off full

retail price!retail price!22



http://www.iclub.com/tk6/

http://www.iclub.com/tk6/



12

Learn why Learn why ToolkitToolkit is the is the world’s most world’s most

popularpopular software software for fundamental for fundamental

analysis of analysis of stocks!stocks!

23




a structured approach to investing using toolkit 6

Business