Value Line Ranking System
To invest with confidence, join other sophisticated investors and begin your stock analysis with Value Line’s ranks. The performance of our Timeliness™ and Safety™ Ranks is unprecedented. No other investment research company’s track record comes close to Value Line’s for identifying stocks that will deliver the highest returns over time.
Results prove that your best strategy for outpacing the market is to buy stocks with high Timeliness Ranks. The Timeliness Rank alerts you to the expected price changes of a stock for the coming 6 to12 months, relative to the roughly 1,700 stocks that Value Line analysts cover.
Timeliness Ranks are assigned grades from 1 to 5. Stocks ranked 1 offer you the highest price growth potential, while you can expect those ranked 5 to have least potential gains.
All data used to calculate the Timeliness Rank are actual, known, and continuously updated.
Some of the factors that determine a stock’s Timeless Rank are:
-Earnings growth. A Company who's earnings growth over the past 10 years is greater than its stock's price appreciation over the same period is likely to have a higher rank.
-Recent quarterly earnings performance.
-Recent earnings surprises that are significantly better or worse than expected. The stock's recent price performance relative to all the other stocks in the Value Line universe.
How can you interpret a specific rank? Here’s what the grades mean:
Rank 1 (Highest): Your highest likelihood for capital gains within the next 6-12 months. We expect the price appreciation for rank 1 stocks to be greater than the other stocks in the Value Line universe over this period.
Rank 2 (Above average): Expect stocks ranked 2 to show better-than-average price appreciation relative to the other stocks we follow.
Rank 3 (Average): These stocks are in the middle. Presume their price performance will be in line with the majority of stocks our analysts follow.
Rank 4 (Below average): These stocks are likely to underperform stocks ranked 1 through 3. You should probably take their anticipated below-average price performance as a red flag.
Rank 5 (Lowest): Unless you’re a long-term speculator, it is wise to avoid rank 5 stocks. We expect their price performance to be the poorest of all stocks in our database.
There are three fundamental reasons a Timeliness Rank can change: as a result of new earnings reports or company forecasts, changes in the price momentum of a stock relative to the other stocks in the Value Line universe, and shifts in the relative positions of other stocks.
Value Line calculates changes in the Timeliness Rank every week. This assures that the ranks of your portfolio stocks and the ranks of stocks you are watching are always current.
A word of caution to conservative investors
Stocks ranked 1 for Timeliness are often more volatile than the overall market. They tend to have smaller market capitalizations (the product of a company’s outstanding shares times the stock’s price per share). If you’re a conservative investor, you may want to select stocks with both high Timeliness and Safety Ranks, because stocks with high Safety Ranks are likely to be more stable (details below).
Performance-proven, so you can make buy-sell-hold decisions with confidence.
The price performance over time of stocks ranked 1 is absolutely unmatched in the world of investing.
Making changes weekly
The performance of the Timeliness Rank is outstanding when all rank changes are implemented weekly.
It is unlikely a stock ranked 1 or 2 will outperform the market every week or month. But — over the long term — you can depend on top-ranked stocks to outflank lower-ranked stocks, as actual results demonstrate.
In a general market decline, you can assume that high Timeliness Ranks will protect you to a certain degree, but only over the coming 6 to 12 months. On the other hand, don’t depend on a high Timeliness Rank to insulate your portfolio from a sharp drop in the stock market on any given day, week or month, as a high Safety Rank may do.
Value Line’s Timeliness and Safety Ranks, combined with our incisive Analyst Commentary, are your most valuable tools for making decisions that fit your particular investment strategy.
The second key to investing with confidence is Value Line’s Safety Rank.
The Safety Rank measures the total risk of a stock relative to the other stocks in the Value Line universe.
The Safety Rank is calculated from the Financial Strength rating of a company and its Stock’s Price Stability score. Financial Strength is a measure of the company’s financial health. Price Stability is based on a ranking of the standard deviation (a measure of volatility) of weekly percent changes in the price of its stock over the last five years.
Like the Timeliness Rank, stocks receive Safety Ranks for the next 6-12 months on a scale from 1 to 5:
Rank 1 (Highest): Your safest, most stable, and least risky stocks relative to all the stocks in the Value Line universe. Rank 1 stocks may have lower Timeliness ranks because of their stability.
Rank 2 (Above average): You can expect stocks ranked 2 to be safer and less risky than average.
Rank 3 (Average): These stocks are in the middle. Assume their risk level is consistent with the majority of stocks we follow.
Rank 4 (Below Average): If you’re tolerant of risk, you might not rule out a stock with a rank 4. Expect rank 4 stocks to be riskier and less stable than higher ranked equities. Conservative investors will want to avoid these stocks.
Rank 5 (Lowest): These stocks are the riskiest and least safe. If you’re an aggressive investor who can tolerate a high level of risk, you may want to consider rank 5 stocks because many represent smaller, less stable, growing companies that may yield rewards commensurate with their risk in the future.
If you expect the market to head lower, but prefer to maintain an equity-based portfolio, concentrate on stocks ranked 1 or 2 for Safety. At the same time, keep your portfolio composed of stocks ranked as high as possible for Timeliness. If you can’t find stocks ranked high on both counts, you’ll have to decide which is more important to you — price performance over the next six to 12 months, or Safety. You may also want to consider a compromise by picking stocks ranked 1 or 2 for Timeliness and 1 or 2 for Safety.
Peer and industry comparisons
When you assess a company’s Timeliness and Safety Ranks, be sure to note how the company compares to its peers and industry group. This gives you a wider perspective on the company and Value Line’s forecasts for it.
For conservative investors
If you’re a conservative or income-oriented investor, pay particular attention to stocks with high Safety Ranks. These stocks are usually associated with large, financially stable companies with strong balance sheets. Companies whose stocks have a high Safety Rank often have less-than-average growth prospects because their primary markets tend to be growing slowly or not at all.
For aggressive investors
Aggressive investors might want to hold stocks with low Safety Ranks. These companies are often smaller and/or have weaker-than-average finances. But they can have above-average growth prospects because they start with a lower revenue and earnings base.
Safety is especially important in periods of stock market downswings, when you will want to limit your losses.
As with Timeliness, you can rely on the Safety Rank with confidence. Its performance is clear: stocks with high Safety Ranks generally fall less than the market as a whole when stock prices drop. The accompanying table shows how the Safety Ranks worked out in all major market declines between 1972 and the present.
Penalty and reward of risk
A stock with a low Timeliness Rank is risky. It earns a low rank because it has shown low Price Stability or lackluster earnings growth, and its price fluctuates widely around its own long-term trend. A risky stock may also be one of a company with a low Financial Strength rating. You can be confident that the price of a risky stock will rise more than the stock of a safe stock in a generally strong market. But, a caveat: if the market declined sharply in a short time frame, and you were forced to sell at an inopportune time, you could suffer a heavier penalty for having bought the high-risk stock instead of the safer one.
*Arithmetic averaging allowing for weekly rank changes.