David Trainer demonstrates the Stock Tracker 50 membership, which uses institutional-grade data and academic research from Harvard and MIT to rate stocks. The platform tracks five metrics: economic earnings, return on invested capital, free cash flow yield, price-to-economic book value, and market-implied growth. You can monitor up to 50 stocks and get email alerts when ratings change.
Chapters
We had someone request the ticker IONQ. It shows unattractive. This is a rating based on the best data in the world. I can prove that to you here. A blog post that links you to multiple papers around how our data is the best in the world. Our stock picking ranks number one consistently every month for the last 42 months. Months on the biggest buy-side platform that I think exists. Again, buy-side platform is very different from sell-side. It's much more competitive. Here's a paper proving that we have the best fundamental data in the world. Here's another paper proving that we have the best models in the world from Ernst Young. This paper is written by Harvard Business School and MIT Sloan School of Management. And has been published in a top-tier peer-reviewed journal, the Journal of Financial Economics. Then the third paper from Harvard Business School on our superior stock ratings, how they outperform human analysts. So that's what's driving the core of our research platform. These ratings, the ones that are featured by Harvard Business School, are driven by 5 sub-ratings or sub-criteria. You've got economic earnings versus accounting earnings. You'll get a quick definition here. If you want a full definition, go to the education page and you will find on the education page under metrics an explanation of every single item: economic earnings, return on invested capital, free cash flow yield, price to economic book value, and growth appreciation period. We got definitions for all of that in the education section of our site. So here for INQ, quality of earnings neutral. Means the economic earnings and accounting earnings, they may not be the same, but they're not so different that it makes us feel really good or really bad, neutral. ROIC, very unattractive, means these guys got a really bad return on invested capital compared to other companies. In terms of valuation, you've got an unattractive free cash flow yield, an unattractive price-to-economic book value, and a very unattractive market implied growth appreciation period. The market implied growth appreciation period is based on what I believe to be the most sophisticated reverse discounted cash flow modeling product in the world by far. And what it seeks to do is not try to predict the future. I don't believe in that. The first thing I say to all my analysts is, would you rather be a fortune teller or would you rather be a critic of fortune tellers? And of course, the right answer is you'd rather be a critic, right? I mean, who wants to be in the business of predicting the future and be held accountable for it? Not me. Mr. Market has to do that every day. Every stock price embeds a prediction of future cash flows based on the principle that the value of an asset is equal to the present value of future cash flows. So what our discounted cash flow model does is Figure out the cash flow stream required to generate a price equal to the current stock price. And we call that reverse engineering the cash flows required to justify the price. So when you see a market-applied growth appreciation period of very unattractive, you're looking at a stock where when we model out cash flows based on consensus revenues and reasonable forecasts for margins, tax rates, and the balance sheet, we cannot get our DCF model to generate a price equal to the current stock price within 100 years. We have got 100 years of profit growth at consensus estimates, and the DCF model will not generate a price high enough to equal the current stock price. That is very unattractive. We are very excited to be debuting our institutional quality product to a non-institutional audience like you. You get the benefit of all the same data and analytics. You just don't have to wade through 200,000 pages of filings and numbers and models. We serve this up to you as is here on a silver platter, making it super easy. Green is good, red is bad. And this one metric is a great example of how a very sophisticated modeling system, inputting system, all that, we boil all that down to one signal for you. The price-to-economic book value is not as complicated a model. It is a more intuitive concept. It is the price to no growth value of the stock. For example, if the price of the stock is $10, and the economic book value is $20, then the price-to-economic book value would be 0.5. In that situation, we would say, hey, the current stock price is implying profits will permanently decline by 50%. Because the market cap is half the no-growth value. On the other hand, when you're looking at something like this that's attractive, you could probably have a price-to-economic book value that's 2 to 3x, or the price 2 to 3 times economic book value. And what we're looking to capture here is how much of the stock price is dependent upon future cash flows. Because the more of the value of the stock that's dependent upon future cash flows, well, the riskier it is. The more we have to depend on the future to generate those cash flows in order for us to break even in owning the stock, that's riskier than one where the price-to-economic book value is 0.5, in which case, hey, this company is making twice as much as what it needs to justify the price already. So, I got a lot less risk and a lot more upside. And then the 2-year average free cash flow yield, that's just free cash flow divided by enterprise value. And we adjust it, we look at a 2-year average, So that we're not just looking at free cash flow year to year, because that can be pretty noisy because people make capital decisions year to year, and capital allocation decisions are big chunks of money that affect the balance sheet that really affect free cash flow. We also exclude all cash from our measure of free cash flow. We don't think that the amount of cash that the company has really reflects the operational aspects of free cash flow. We also adjust the enterprise value for things like pensions and Outstanding options. It's the best measure of enterprise value and free cash flow in the world for US stocks. When I ran a hedge fund, free cash flow yield was like one of our top metrics for picking stocks, so was price-to-economic book value. So, question, are you saying to sell this stock, or are you saying you would just downgrade this stock? Ratings change all the time. So, with respect to upgrades and downgrades, Let me take you to the portfolio page. Here's where you go in and you can store up to 50 of your favorite stocks, ETFs, or mutual funds. You will be alerted by email anytime there's a rating change on any of the stocks, ETFs, or mutual funds that you want in the tracker. Highly recommend you have that for all of your portfolio. If you need to have multiple subscriptions to get this, to get, you know, because you have more than 50 stocks, I recommend you buy multiple subscriptions, or you can upgrade to Pro. You can have a limited number of stocks and track them, track as many as you want. But the point is, you'll get updates every time there's a change, so you are alerted to an upgrade or downgrade. Going back to the question, what does this mean? Unattractive means we think this is bad risk-reward. We don't make recommendations about when to buy, when to sell, things like that, but we would not recommend owning the stock. Hey, thank you guys. Thank you for being with me. It's good to meet you all. I'm really proud to be sharing this message with more investors. I talk to institutions all the time and have for years. And I enjoy these meetings more because you guys care about fundamentals. I can't tell you how many institutional folks, they don't even care. They just want to know the next quick trick that's going to make them a million bucks. They don't care about the markets. They don't care about the integrity of the capital markets or companies. They just want to be in the next hot thing.
