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Value Line’s Timeliness System – Time to Reboot?

|Includes: Value Line, Inc. (VALU)
I love Value Line as a source for stock information. It’s the only place to find a full fifteen years of data in one place that shows monthly stock price movements right above the statistics for that same year. This makes it very useful in seeing how changing fundamentals were reflected in the stock’s price action.
Value Line often tries to sell subscriptions based on their “Timeliness Ranking System” where they assign #1 to their best buys, #2 to their next best expected performers  and #4 and #5 to their stocks to ‘avoid’. #3’s are rated neutral or ‘market performers’.
If their system worked as advertised the #1 ranked issues should be outperforming their #4 and #5 rated stocks. Has this actually happened? Let’s take a look using Value Line’s own numbers as listed in their July 30, 2010 issue (released on line July 26th).
The source for this data is right from the current issue of Value Line.
VL Rank*
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010**
#1
-20.3%
-27.2%
33.8%
8.4%
5.6%
0.7%
18.2%
-53.4%
15.9%
-3.6%
#4
5.9%
-26.7%
34.2%
9.4%
-6.7%
11.8%
-14.3%
-53.8%
40.1%
-4.8%
#5
-7.2%
-15.7%
52.2%
15.2%
-12.6%
7.8%
-28.0%
-73.3%
38.7%
1.0%
* Ranks adjusted weekly by VL  
** First half data only
 
In seven of the past ten years (including 2010 through June 30th) the must-avoid #5 rated shares have significantly outperformed the top-rated #1 ranked stocks. In six of those seven periods the #4 ranked stocks also did better than Value Line’s #1 ranked issues.
After a decade long losing streak like this I am hoping that the newly installed management figures out what has been going wrong and adjusts their methodology. 

Value Line's own stock [VALU- $15] looks extremely cheap with a better than 5% dividend and a debt-free balance sheet.


Disclosure: Long VALU shares