12. Weighted Alpha - The NASDAQ Dozen
Weighted Alpha is the last metric in your stock analysis, and this one takes a few more clicks to get to. First, go to the main menu and hover over the Market Activity tab. Once the sub-tab appears, click on the Sector Analysis link (see Figure 20).
On the Sectoring by Industry Groups page, enter the ticker symbol of the stock you are interested in and click on the GO button (see Figure 21).
Once the results appear from your search, click on the link for the industry which the stock belongs to---it is typically the second link down (see Figure 21).Why We Look at Weighted Alpha
Weighted Alpha is a measure of one year growth with an emphasis on the most recent price activity. A positive Weighted Alpha indicates the stock price is moving higher and a negative Weighted Alpha indicates the stock price is moving lower. Naturally, when you are looking at buying a stock, you want to see a stock that is increasing in value, not decreasing in value.
Figure 21Industry Link
How to Score Weighted Alpha
- PassGive Weighted Alpha a passing score if the number is positive.
- FailGive Weighted Alpha a failing score if the number is negative.
Looking at Weighted Alpha for WMT in Figure 22, WMT should receive a failing score. You can see that number is negative.
Weighted Alpha: FAILPutting it All Together
|2. Earnings Per Share (EPS)||PASS|
|3. Return on Equity (ROE)||PASS|
|4. Analyst Recommendations||PASS|
|5. Earnings Surprises||PASS|
|6. Earnings Forecast||PASS|
|7. Earnings Growth||PASS|
|8. PEG Ratio||FAIL|
|9. Industry Earnings||FAIL|
|10. Days to Cover||FAIL|
|11. Insider Trading||FAIL|
|12. Weighted Alpha||FAIL|
Figure 22Weighted Alpha
This is a negative score. But now that you�ve done all of this, what does it really mean? Is it a guarantee the stock will go up? Certainly not. Investing is an exercise of analyzing information and putting your money where you have the most confidence and the greatest likelihood of success. There are no guarantees.
Typically, stocks with NASDAQ Dozen ratios of 12:0 to 9:3 are strong candidates for growth, stocks with ratios of 8:4 to 6:6 are moderate candidates for growth and stocks with ratios below 6:6 are poor candidates for growth.
Using the NASDAQ Dozen arms you with the data you need to make an informed decision and to put the odds of success in your favor. To get started, check the stocks you currently have in your portfolio and see how they stack up. You may be surprised.
All content in this article is supplied by Wade Hansen of Learning Markets. To learn more about their investor education offerings, please visit learningmarkets.com. Find more great articles from Learning Markets in our news sections.