ValuEngine

There are number of services available to investors that utilize valuation metrics as a basis for stock selection and screening. ValuEngine is one of the more popular services in this area.

ValuEngine's Stock Valuation Model is based on some interesting research and has been extensively backtested. Like many services of this kind, they provide a ranking system. The highest rating is a 5-Engine which is a considered a strong buy rating while the opposite is a 1-Engine or strong sell. According to ValuEngine, the 5-engine ratings have significantly outperformed the others:

As for the ValuEngine website, overall my impressions have been positive. For $200 per year or $20 a month, you receive access to a nice set of tools and portfolios. Although they need to improve some of the service's functions (for example, batch importing of portfolios and watchlists through a list of ticker symbols and offer better download functions like through Excel) the service is fairly easy to use. In fact, their advanced stock screener has been very well designed and even those who don't have a lot of experience with using stock screens will find that tool helpful.

The biggest weakness overall is that ValuEngine's coverage is limited. For example, quite a few of my stock screen machine stocks - like Potash (POT) and Research In Motion (RIMM) were not rated by their system even though they are fairly popular with investors. While I suspect their institutional software offers quite a bit more features and coverage, the price is simply out of reach for most of us ($5,000 per year or $500 per month). In some ways, the website is a bit of a teaser to get subscribers to shell out the big bucks, but that's par for the course for many of these kinds of offerings.

For some fun, I would like to share with you how my stock screen machine ranks according to the ValuEngine's proprietary formula. I have prepared this extensive spreadsheet which shows ValuEngine's recommendation, rating, fair value estimate, and 1 year expected return (at least for those stocks covered by the service) for every stock within my stock screen machine. Although I do not use ValuEngine's proprietary system in my stock screening, it was nice to see that my stock screen machine ranked fairly well (i.e. no sell ratings and a number of buys & 5-engine rated stocks). It was also interesting to see which stocks ranked the highest within specific sectors as provided within the spreadsheet.

As with many services of this nature, your mileage may vary depending on how you intend to use it. It certainly is not the holy grail (I've yet to see any system based on valuation in this manner to come even close), but if your approach lacks a valuation component and/or you think your strategies could benefit from that in some manner, you may find ValuEngine a worthwhile tool.