The Dugan Scoring System is a tool to identify the overall quality of CCC companies. I believe there is a strong correlation between Dugan Scores and the quality of individual stocks. Those companies' stocks earning high Dugan Scores are high quality stocks which should produce better investing results, going forward, than otherwise would be attained by simply filtering for desired characteristics. This proved true in 2015, the 3 different challenges done during 2016, the results of which can be found here and so far in 2017 ( found here).
In this context, highest quality means companies which have:
STRONG CURRENT CONDITIONS, as exemplified by: great value as measured by relative Graham number, low payout ratio, low debt/equity ratio and high most recent dividend increase %. E XCELLENT FUTURE PROSPECTS, as exemplified by: high EPS growth forecasts for this year, next year and 5 years out, and excellent dividend growth histories.
The Dugan Scoring System isn't a popularity contest. It is a disciplined, systematic and dispassionate approach that evaluates each CCC stock based on a wide variety of investment criteria from four broad categories: Risk, Value, Past Performance and Future Performance Expectations.
So, the purpose of the scoring system is to determine the all-around quality of a stock for buying, holding or selling purposes.
But, no stocks, like no people, are perfect. Even high quality and high scoring stocks have weaknesses, the same as low scoring and low quality stocks have some strengths. So, a Dugan Score is a balanced, holistic picture of a stock, which includes its strengths and weaknesses.
You can see from the above explanations, the Dugan Stock Scoring System is about the current state and expected future performance of a company's stock, not necessarily the company itself. And, it doesn't matter how well a stock has performed for its owners in the past - it only matters what are the current conditions and expected future performance of the stock. This is an important point when an iconic stock makes a "worst" list.
The table below is a summary of the metrics used in the Dugan Scoring System, along with each metric's relative weighting in the overall formula. The weightings are my assessment of each metric's relative importance in calculating the company's overall quality.
After calculating the Dugan Score, a small bonus, or penalty, is applied to the earned score for each CCC stock, based on four brokers'/analysts' recommendations for current sector weightings (Fidelity, S&P Capital IQ, Ned Davis and Lance Roberts (here)). The base bonus or penalty calculation is simple: market weight earns zero points, overweight earns 1 point, underweight earns minus 1 point, net/net from each of the 4 sources.
Hereafter are the 15 highest "Dugan scoring" March CCC stocks with market caps greater than $20 billion:
Hereafter are the 15 lowest "Dugan scoring" March CCC stocks with market caps greater than $20 billion:
Note that many companies in the "Worst" list have "n/a" in many columns. Whenever a company has an "n/a" in a cell, it receives zero points in the DSSS. I have added an extra column in the "Worst" list. It is the "TTM EPS" column. Look carefully and many companies have negative TTM EPS numbers, implying a loss, not a profit, on a TTM basis. That is the primary reason for the "n/a's" and for the appearance of some highly popular companies on the "Worst" list.
For perspective about any company on the lists, I always find it helpful to compare how well its performance in any column compares to the averages shown at the bottom of the table. Doing this will answer most questions about why a company may have achieved the Dugan Score it earned.
I hope you found the information valuable and enjoyed this journey. Comments are encouraged. Successful investing!
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. (Borrowed from Chuck Carnevale.)
Disclosure: I am/we are long ADM, AIZ, GLW, CVS, LNC, MGA, MHLD, PRU, SCS, TSO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.