Online Stock Trading

This article is part II of a three-part series.

Here is Part I

Now let’s move on to the flip side. For the next ten graphs, the x-axes will be the same, yields small to great. The graphs will show what the fundamental metrics are doing as yields are going up. In the upcoming and final part of this article, we’re going to try to capture what these next graphs are showing us about what the market is doing right now, so we can see if what’s happening can be captured by particular stock selections. Also, as stated in the beginning of Part I, these next graphs use a greater smoothing factor which gives us the advantage of actually being able to see trends where there are trends, but at the loss of some precision (the trends we will see will be subjects of much greater subsets).

Back to market cap. Previously when we looked at market cap, we looked at what the yields did over the various market caps; this time we’re going to look at what the market caps do over the various yields. Same thing, different view, different smooth:

It should be clear, bigger companies indubitably performed better these last five months. There is a very heavy bias toward larger market caps and where they lie among the yields. The extreme right (best performing stocks) had an average market cap of about thirteen billion.

If we look again at trailing P/Es, we can see some interesting things:

The trailing PEs (as they were at the end of July) seem to indicate that those with the highest PEs definitely fall along the worst yields—but only to a point. The lowest PEs did not perform the best, just not the worst; in fact PEs of around 26 were both the average best performers and also sit in the middle using this smooth. Picking the very lowest PEs won’t guarantee us the best possible performance. The very best performers had average PEs of about 25-26.

Next, let’s look at what the price to earnings growth ratio does over the various yields:

The lowest PEG ratios do both the worst and the best, though the very worst performers had lower PEG ratios than the very best performers. The very best performers had average PEG ratios of about 1.81, the very worst ranged between that and 1.70 (or even less).

Next let’s look at price to sales:

Here we can see a very clear tend. Surprisingly, the very best performers had the most expensive P/S ratios, the trend here is very clear. As yields go up, so do the average P/S ratios of those stocks with the higher yields. The aversion to risk is no doubt causing this effect. The very extreme best performing one thousand stocks had price to sales ratios of about 2.8.

Now take a look at how price per book values ranged over the various yields:

This one is even more tasty. What we saw with price to sales is completely confirmed. The stocks where you buy less book value for every dollar spent performed the best. The very best performing 1000 stocks had price to book ratios in excess of 4.50.

Now let’s look at how profit margins do over the yields:

Here, while we can’t say with certainty which profit margins are associated with the greatest yields, we can see which ones aren’t: we would want to average out in excess of 13.2%.

Cash per share looks rather peculiar:

These variations would seem to be caused by some extremely large companies who are very cash heavy. Surprisingly, the very best performing stocks had more than 30% less cash per share on average than the very worst performing stocks. The best performers had cash per share in the neighborhood of about six and a half dollars.

To avoid the difficulties in finding relevance for cash per share outright (because we can’t know if the value is caused by the cash or the number of shares) here’s that quirky statistic I made, price per cash per share:

While we can’t tell much with the cash per share by itself, we can by using this, we can know how expensive that cash per share is, we can then make the cash per share relative to all other stocks. In this case, we can see that the relation of a stock’s price to its quantity of cash per share is very interesting. The stocks where we are paying less for their cash per share, were the clearly best performing stocks, these were ones where we paid (gulp) about 220 times their cash, for their stock.

Debt to equity next is another very clear trend:

The very best performing stocks had definitively lower debt in relation to their equity. The graph almost has an inflection it’s so clear. Highly leveraged companies have not been treated well in this leverage-averse market.

The last one here is the current ratio again:

To be honest with you, I can’t quite get my head around it. The companies who would seem to be able to pay their immediate bills for less time were the best performers. All I can think of is that larger companies just don’t keep that much cash around, they keep what they need to. Any thoughts on this?

This article is part II of a three-part series.

Here is Part III