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Stock Ratings
You may read or do research on your own, and may think that some of the stocks I recommend have fundamental issues, or unacceptable PE ratios.  Welcome to the world of investing. All stocks that go a through a price correction have some sort of a problem; otherwise, they will not be correcting. My advice to you is to ignore everything that Wall Street is saying, telling, implying, or advising, as things are not what they seem. Assuming you are following the Market Gauge, my X score ranking will single out the most volatile stocks. Furthermore, use of my index scaling technique through your Position Manager will ensure that your final average position in each stock will be fairly close to the final bottom in the stock. You can take this to the bank. By using a conservative and constant IPS, as calculated by your Position Manager, you will slowly and safely add money as the stock falls in price. Although there are certainly times when a stock falls below my comfort level, in general I hope that my average pick will fall low enough to trigger 2-3 buys per stock to end up with a decent size position. 

"Recommend a few good stocks to me." is probably what most investors ask their investment advisor.  Unfortunately, "good stocks" often mean a huge downside risk. While in theory we all want to invest in "good stocks", the fact is that "good stocks" face huge downside risks. To me, a good stock is just a stock that hasn't blown up yet. In my experience, the percentage of stocks which have experienced train wrecks after spectacular runs is just too high to take the risk. Let's take StockScouter, which is a stock rating system, and let's use PFE as an example.  Now as you can see below, StockScouter has a 4 level stock rating system, and currently ranks PFE as follows:

Fundamental

StockScouter gives PFE a nice A as a fundamentally very sound company.

A

 Ownership

However, it gives PFE a bad F rating for the fact that it had recent insider selling.

F

 Valuation

In addition, it also gives PFE an F for its PE ratio.

F

 Technical

Lastly, it gives PFE another F rating for its lousy technical picture.

F

 

The only possible time a company would get good rating on all 4 counts is when all is hunky dory. So, if a company is doing great, then it would get an A for fundamental, an A for Ownership, an F for Valuation, and an A for Technical.  The only problem with that is that it will no longer be a "good" value stock.

 

Here is how it really works.

First, the stock takes a dive.

There is always a reason why a stock is taking a dive, and therefore it is not likely to score well on fundamentals.

Obviously, since management is close to the action, insider selling is always part of the equation.
Funny but true, the PE ratio is often unreliable when bad news hits.

Lastly, when a stock takes a dive, the technical picture is never pretty.

While PFE is currently not considered to be a "good stock", I think it has a better risk reward ratio than most good stocks.  Now that the story is out, and PFE has taken a hit, it has a better upside potential and less risk.

Wisdom:  Avoid all stocks that are subject to regulatory injunctions, Attorney General lawsuits, product deficiency and fraud class action lawsuits.  Staying away from companies facing heavy litigation is justified by the following reasons:

  1. Senior management will be heavily distracted by depositions and lawyers' meetings and will be out of business focus for a while.

  2. Financial losses incurred in the stock markets may trigger a rating review of the corporate debt by the rating agencies, leading to more stock losses.

  3. Financial fines and unfunded/uninsured damages will take a toll on the balance sheet.

Once the legal matters are resolved and damages assessments and fines are paid off, then one can revisit the issue.

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