(Note: If this is the first time you’re looking at this program, refer to the earlier post first, to understand requirements to run the program.) 

I’ve seen considerable interest in the Excel sheet I provided earlier, quite a few downloads :-), I’m happy people are finding it useful. I received, some useful feedback: providing better status updates, possibly speeding up the program etc. and hence, I’ve updated the program further.

I’ve added some new features:
1. Adding companies to a separate WatchList sheet, in case their current price doesn’t match the value you feel you should pay for the company, however they have excellent CROIC and FCF Growth. Basically Mr. Market is overpricing them currently.  Such a company should be kept on a watchlist and thats the additional functionality I’ve included.
2. Speed: I’ve updated the program, such that my code doesn’t add any significant additional time to the data retrieval process (by tapping in to Excel Events). So the program now works much faster.
3. Status indicators: I’ve added several status messages, to make sure the user is aware of what company is currently been scanned, the total time taken for a scan etc. This helps in knowing what the Excel sheet is doing currently, and prevents it from looking hung.

With the additional speed improvement, comes a bigger caveat: Don’t scan all 500 at one go. The sites providing data observe large repetitive requests, often they block data provided to the particular requester(based on the source IP address etc.). As always scan in batches of 10-20. Basically, just because you now have a Ferrari, don’t drive like you’re on the racetrack everytime. Use the free sites data responsibly. FYI there are two free sites from where data is referred to: MorningStar for Financial Statements and MSN Money for current price. Go online and provide feedback to them saying how glad you are that they are providing 10 years of free data. They’re doing a wonderful service to help the individual investor.

In addition, this time around I’ve picked up the list of S&P 500 companies directly from their website.

As usual I’ve done a scan of all 500 companies of the S&P 500 using the Excel and you can see the Candidates and WatchList companies in the respective sheets.

Download FWallStreet_Model modified for S&P500 2003 version 1.1
(Note: Download and rename the file to .xls & view the earlier post for requirements for running the program.)

I look forward to your feedback on areas of improvement via comments to this post.

My quest for an easier method to find stocks worth analyzing in detail, got a boost by user PeteKoch(from the http://www.roicommunity.com) who had modified the basic spreadsheet created by Joe Ponzio of FWallStreet.Com to allow one to enter any stock symbol and automatically pick the values from MorningStar etc. and supply the values to Joe’s original spreadsheet. Pete was using the amazingly interesting Stock Market Functions add-in developed by Randy Harmelink which is available at http://finance.groups.yahoo.com/group/smf_addin/. A user at FWallStreet Robert mentioned that he had written a program to scan the S&P 500 and come up with possible investment candidates using Joe’s methodology. However since he was still refinining his program, I thought, hey! why not me write a simple macro which does this using the one Pete had modified. The file mentioned below is the result of that experiment. It saves me hoursssssssssssssssss and I hope you will benefit from it too. I’ll keep updating this Spreadsheet as and when time permits. The macro program only shows you candidates where the FCF and CROIC are greater than 15% (you can change these values via parameters) and the current share price is lower than estimated Share Value or Intrinsic value.

Ok, I know you’re wondering how do I get/use it? 
Note 1. Consider the stocks turned up as candidates worthy of further research, not a recommendation or a buy list.
Note 2. Don’t scan all 500 at one go, first scan one at a time, on the “Main” sheet, then scan in sets of 25, as the processing time will be HUGE  for 500 at one go which might cause your computer to slow down, unless you have a computer with 1+ Gig of RAM and a core 2 duo processor and a good high speed internet connection, then go for it.)
 
Step 1. Goto http://finance.groups.yahoo.com/group/smf_addin/

Step 2. Download and install Randy’s add-in (It’s located in the Files section, in a folder called “Add-In Files”).
Without Randy Harmelink’s add-in installed my program is of no use. You can find instructions in the Files ->Documentation section on the yahoo group. ( The instructions are pretty simple, download the zip file containing the add-in and its supplementary files and extract all of the files into the “C:\Program Files\SMF Add-in” file folder on your computer. Then open Excel, make sure a blank workbook is open, choose the menu Tools->Add-Ins, in the dialog box which opens choose Browse and choose the folder “C:\Program Files\SMF Add-in” and then choose the file “RCH_Stock_Market_Functions.xla” and click OK.
The forum on the site, has all answers to question’s incase you get stuck installing the add-in. Don’t ask me look thru the forum there
(P.s. If you’re looking for Pete’s modified file it’s located in the section, Files > Uploads by forum members and is called FWallStreet_Model.xls .)

Step 3. Download my file -> FWallStreet_Model modified for S&P500 2003 version 1.0

Step 4. Rename the extension of the downloaded file to .xls. (Note: You require Microsoft Excel 2003)

Step 5. Open my file, and read the basic documentation given on the Notes Sheet, down to the limitations section. Excel might warn you about Macros, if you trust me :-), you need to enable macros to allow my program to run.
Note: The first time the file opens it will do some processing to update data in the Main sheet from the web, so hang in there. Remember I’ve already run the program and done one scan of the S&P 500, results of which, you will find in the sheet called “Candidates”. Remember scanning thru 500 companies of the S&P 500 is going to take a lot of time. So best would be, that if you run the program, do it when you have loads of time and good Internet bandwidth. If you need to run Excel in the interim just start another instance of Excel to continue other work.)

Step 6. Settings: This sheet, allows you to control the various parameters for the scan, median FCF, median CROIC and you can set the scan start row and end row, you would use this if you want to scan smaller sets of data at a time. For e.g. while I was building this macro I often scanned 25 companies at a time, as I was really impatient to see the results In addition I set the  median FCF and CROIC to be above 15%. You can change these settings and do your own scans.

Step 7. Running the Program:Go to the Settings Sheet, and click on the graphic called “Run Program”. This will start the macro which will start scanning and finding likely candidates. Note: Incase you want to stop the program from running, Press the following keys together Control + Pause (or Break).

Note 1: The list of S&P 500 companies I picked from http://en.wikipedia.org/wiki/List_of_S%26P_500_companies
Note 2: Only companies where the current price is lower than the Buy Under price are added to the candidates sheet.
Note 3: If for whatever reason you want to interrupt and end the program go to excel and hit the Control Key + the Pause key. 

I believe the S&P 500 list does change over a period of time, the official source is out here you can also download the list out there as a .csv file and replace the list in my Excel sheet, S&P 500. IMPORTANT don’t delete the first row in my sheet.

Stock Selection or What to look for when evaluating a company

Determining the value of a company to purchase is at times more art than skill. I’ve found the resources listed below quite helpful in evaluating companies worthy of purchase and then pegging a value or price to the stock. Benjamin Graham referred to this as the intrinsic value of a stock. The basic idea being that largely the stock market values a stock correctly at it’s intrinsic value however at times Mr. Market has large mood swings and makes available great companies at discounted prices and sometimes values them insanely high. However figuring out the correct value is the key challenge. The links and articles below have helped me, hopefully they will help others as well.

Phil Town describes it as The 4 Ms - Meaning, MOAT, Management, and MOS(Margin of Safety) you can read about Phil’s method on his blog - http://philtown.typepad.com/phil_towns_blog/2006/02/the_four_ms_qui.html 

Joe Ponzio also has a post on Finding Companies Worth Analyzing - http://www.fwallstreet.com/blog/58.htm

Valuing the busines or determining Intrinsic Value or Sticker Price

Phil Town’s method - Here is an example of calculating the intrinsic value or Sticker price as Phil calls it.
CALCULATING DELL’S STICKER PRICE - http://www.philtown.typepad.com/phil_towns_blog/2005/11/calculating_del.html 

Phil provides many such examples on his site, and I would recommend reading thru his blog in detail. I for one have learnt a lot from Phil’s excellent book Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week!  and from his blog. However as my investing intelligence has increased(I think so ;-) I am not extremely comfortable using the PE as a basis for calculation of Intrinsic value or sticker price, however I find his methods of stock selection excellent.

Joe Ponzio of FwallStreet offers a method of calculating the value of a business in a series of posts, he argues that, The only thing that matters in buying a private business is the amount of cash that it can generate—its free cash flow. The Importance Of Valuing A Stock (http://www.fwallstreet.com/blog/3.htm). He next shows you how to Calculate The Value Of A business in a four part series of blog posts http://www.fwallstreet.com/blog/25.htm

Joe also provides a number of valuations of business; Buffett. Coca-Cola. 1988. Now I Get It. in this article he explores Buffet’s purchase of Coca-Cola http://www.fwallstreet.com/blog/24.htm here he works here’s another I like, titled: Buying Johnson & Johnson - http://www.fwallstreet.com/blog/4.htm

Other sites:

http://www.valuepro.net/index.shtml Online valuation of a company, only input required is the stock symbol. They also offer a software which you can use offline to do a valuation. Details on their valuation method is also explained at http://www.valuepro.net/abtonline/abtonline.shtml

Another interesting site with a number of interesting articles, and one on calculating intrinsic value is http://www.stock-investment-made-easy.com/calculate-intrinsic-value.html

Resources

In order to simplify the task of using evaluation methods given by the experts mentioned above, there are various tools developed by others.

Phil Town based (Note: Phil doesn’t recommend or subscribe to the validity of these resources):

• http://www.stock2own.com/ - input a stock symbol and it will automatically work out a valuation based on their understanding of Phil Town’s method + they provide you the ability to tweak the parameters used in the calculation of the sticker price
• http://www.roicommunity.com/ - Here is a community of investors and one of them has developed an excel based automatic calculator. Check the Downloads Link out there.

Joe Ponzio based (Note: Joe doesn’t recommend or subscribe to the validity of these resources)

• http://finance.groups.yahoo.com/group/smf_addin/ - This group is the home base for the Stock Market Functions add-in developed by Randy Harmelink. This add-in contains a number of user defined functions for EXCEL that can allow data to be extracted and/or retrieved from the web and placed directly into EXCEL cells or ranges. It works  amazingly well, and if you join this Yahoo group, you will find a file called FWallStreet_Model.xls which automates the process of pulling data of the web and calculating the value of a company. The file is located in the section, Files > Uploads by forum members. Read the forum and documentation section(Under Files) for details on how to install the addin etc.

Benjamin Graham

I decided to do a follow up post on my earlier Free Stock Screeners post, however with a twist. Most of us get introduced to the markets by learning or following a particular Guru, so here goes.
(Note: Consider the stocks turned up by guru screens as candidates worthy of further research, not a buy list.)

1. http://www.grahaminvestor.com/screens - There are a number of stock screens here based on different criteria, Screens which return companies trading at two-thirds or less of their Net Current Asset Value per share. Explanation of how the screen performs is also available http://www.grahaminvestor.com/articles/finding-undervalued-stocks. Details on the portfolio performance are also available.

2. http://www.wisertrader.com/watchlistf.php - . . based on Benjamin Graham’s Trading System. Here again they describe their understanding of Graham’s methods.

Warren Buffet

http://www.wisertrader.com/watchliste.php This is one more screen from the same site as above, however based on Buffet. They mention about Mary Buffet’s book, “The Previously Unexplained Techniques That Have Made Warren Buffett the World’s Most Famous Investor” by Mary Buffett, a former daughter-in-law of Buffett’s, and David Clark, a family friend and portfolio manager. However they don’t clarify if they are using techniques mentioned in the book. I’m not clear on what methodology they’re following here. FYI they also have a Peter Lynch Screen http://www.wisertrader.com/watchlistd.php

Generic Guru Screeners

1. http://www.nasdaq.com/reference/guru.stm - NASDAQ provides a Guru stock screener which covers Graham, Peter Lynch, James P. O’Shaughnessy, David Dreman, Martin Zweig, Kenneth Fisher etc.

MSN’s stock screener is quite versatile and here’s is an article frollowed by a value stock screener based on MSN.
Understanding MSN Stock screener and setting Guru parameters: http://moneycentral.msn.com/content/Investing/Findhotstocks/P104854.asp 
+ Guru Screen: http://moneycentral.msn.com/investor/invsub/finder/finderx.asp?Query=SV1QF234Z04L500000000ZF181Z04L7%2e5ZF135Z05L2ZF138Z05L0%2e75F317MZF137Z05F323L0%2e9MZF134Z04L1ZF215Z05L15ZF164Z05L0%2e9F186MZF3Z05L0%2e75F158MZS99F41Z10&Name=Super%20Value%20Guru&Tickers=200

For a while now, I’ve been scouting quite a few India related online stock broker sites and general investment sites and data sources for companies listed on the Indian stock markets. It’s a sad scenario.

Below is a small list of such sites:

www.moneytoday.in from the India Today Group
www.moneycontrol.com from CNBC TV 18
www.myiris.com
www.sharekhan.com
www.kotakstreet.com
www.icicidirect.com
www.equitymaster.com
www.idbipaisabuilder.in
www.religareonline.com

Here are some strange facts:
1. None of the sites provide 10 year data on companies listed in the Indian markets. The max most of them provide is 5 years of data and most don’t provide detailed cash flow data.
2. Stock screeners are either absent or with such little features that they’re useless.
3. The sites of the stock exchanges are worse making it extremely un-intutive to navigate and reach relevant data.

There are many more sites than those I’ve listed out here, however, they’re not any better in terms of the data needed for an investor to evaluate a company in detail.

There are 3 paid sources which I’ve found which provide 10 year detailed data on companies listed on the Indian stock markets:
http://www.cmie.com/ with it’s Prowess Product the cost of it’s single user annual subscription is INR 60,000/- which is quite prohibitive for the individual startup investor. This is by far the best source of data I’ve seen.
http://www.capitaline.com/ - with its Capitaline Plus a Yearly Subscription INR 1,50,000 or USD 3,750 which is prohibitive by all counts.
http://www.asiancerc.com/insight.htm - with it’s Insight product which is the cheapest of the paid data providers. However, the demo site I tried, had links to data that didn’t work. So one would rather avoid it completely. Interestingly this company provides backend data for a couple of the investment brokerage sites.

In such an environment the fate of the individual Indian investor is challenging indeed. He has to resort to manually going thru the various annual reports to evaluate companies. While trying to prepare a shortlist of companies to study further the lack of stock screening tools makes the process even more difficult and slow.

If there are free sources out there with 10 year data on the Indian stock market please feel free to comment and let me know and I’ll gladly edit this post to include the data.

MSN Money

After deciding to explore investing in the US markets from India and post finding an online trading site at no cost (see earlier post on Zecco which provides a facility to trade and doesn’t charge commissions.) it was time now to find good free stock screeners which would help me find potential investment candidates in the US markets.

Searching for companies which meet your criteria of investment can be a cumbersome task. Fortunately the Internet abounds with Free Stock Screeners which can make the task easier. Not all stock screeners, are made equal, nor are all extremely flexible, some are designed for a particular kind of search, however most stock screeners are getting more flexible.

I’ve listed below my impressions of some of these various stock screeners, though it’s not meant to be a comprehensive review of them. Maybe some day I’ll do a comprehensive review of these stock screeners.

http://moneycentral.msn.com/investor/finder/customstocks.asp
The stock screener provided by MSN Money is quite good. It allows you to set various fundamental parameters.

You can choose to set parameters according to Investment Returns, Price Ratios, Financial Condition, Growth Rates, Current Financial’s, Analyst Projects, Advisor info etc. The one thing I’d however like to see here is Free cash flow growth rate, however since MSN doesn’t calculate Free CashFlow, it’s obviously not going to show up in the Stock Screener.

MSN also has some pre-defined searches such as Distressed Stock Plays, Momentum Stocks, their own Stock Scouter Rating, Dogs of the Dow etc.

It’s quite comprehensive and you can save your custom criteria for later re-use.

Yahoo Screener

http://screen.finance.yahoo.com/fscr/us/launch.html

This is a Java based Stock Screener, you go to the site, wait for a few long seconds and then a new window pop’s up with the Yahoo Finance Screener (currently in version 2.0.8).  It provides a number of criteria such as Descriptive(which index, no. of employees etc.), Share Performance, Trading & Volume, Valuation, Analyst Estimates, Ownership, Dividends, Margins, Balance Sheet, Income Statement, Profitability, Growth, Cash Flow. I found it takes quite a bit to get used to it.

Stock2Own

http://www.stock2own.com

A web based stock screener focused on evaluating companies using the criteria specified in Phil Town’s book Rule#1. It has a nice theory section where it defines the Big 5 criteria of Phil Town style investing and how it calculates intrinsic value or Sticker price as Phil calls it. Extremely simple to use, just put in a stock ticker and it evaluates the stock based on publicly available data and provides a report on the BIG5 etc.

Buffetteers Edited on 28th Sept 2007, the site doesn’t seem to work anymore.

- http://www.buffetteers.com/

Well supposedly based on how maybe Buffet would identify companies.  It provides filters by Operating Performance, Financial’s, Valuation, Growth indicators, and allows you to select fields which you can display in the report. I gave it a cursory look. Might examine it in detail later on.

If you register it allows you to save your custom search criteria. Weirdly their terms & conditions link didn’t work when I clicked on it.

CNBC

http://www.cnbc.com/id/15839076/site/14081545/

It provides pre-defined screens such as: Solid Stocks Solid companies, S&P 500 Dogs, High Quality High Dividends, Small Cap Value, Large Cap Growth and has a Custom Screen as well where you can select parameters based on Company Overview, Performance, Growth Trends, Valuation, Management Efficiency, Analyst Estimates, Financial Strength, Current Financial’s, Dividends, you can even save your custom criteria for re-use later.

Please feel free to provide me links(via comments) to other stock screeners and I’ll add them out here.

I’ve not rated these stock screeners, I’ll leave that for later once I start using them regularly.

I did an analysis of MHP based on Joe Ponzio’s Discounted Cashflow methodology

I like this company for a couple of reasons, it has Standard & Poor’s, as a division besides that its operations consist of three business segments: McGraw-Hill Education, Financial Services and Information & Media, all of which are needed in the new connected world irrespective of downturns in one market or the other. The company has a decent MOAT however reecently the stock was beaten down by Mr. Market, it looked like an interesting time to explore it.

Company Valuation:(All figures are in $Mil except per share values)
Total Value $25,526
Per Share Value $69.58
Desired Discount 25%
Purchase Price $52.18
Current Price $47.85 (price purchased at on Tuesday 18th Sept 2007).
Actual Discount 31%

For the first 10 yrs I’ve grown the FCF at 15.2% followed by 5% for the next 10 years.
Median values for:
Shareholder Equity 10.8%
Free Cash Flow 15.2%
CROIC 29.0%

The numbers seem quite nice :-) 

I then checked for insider activity hmm nothing suspicious here, nobody in the company seems to be selling and running away. That’s a relief!

I then bought it using the simulator at Investopedia I’m going to track how this does.

I chanced on BusinessWeek’s Company Insight Center. It’s in beta, however the data it provides is cool. It provides searchable data on over 42,000 public and 322,000 private companies worldwide. It also provides advanced charting, best of all it covers the Indian stock markets as well - All this for free. It certainly beats hands down all the Indian brokerage sites such as Kotak Securities, ICICI Direct, Sharekhan etc. They don’t hold a candle to the way data is organized out here and the advanced technical charting facilities provided here. You really need to experience it. One of things I like is that it remembers which companies you’ve recently viewed and it keeps that “Recently Viewed” list handy for you. What would definitely make it even better was an advanced Search or stock screener based on the fundamental data displayed out there. The other thing which would make this really brilliant would be if they could provide 10 years data.

I’ve been contemplating investing in the US markets for some time now. Since this is going to be the first time experiment in investing in a foreign market for me,I’ve been hunting around for a service which is cheap.

I’ve finally managed to find one with Zero commissions for 40 10 trades per month. ZECCO - The Free Trading Community. (Note: Edited on 13th Oct, Zecco now only provide 10 free trades per month, versus 40 it offered earlier).

The best part is, there’s no minimum deposit required to open an account. Margin accounts require $2,000 minimum.

Here it is straight from the horses mouth

“Zecco stands for Zero Commission Costs. We bring you free trading through Zecco Trading. That’s right, you can trade securities for $0 commission for the first 10 trades a day and 40 trades a month. After that, you only pay $3.50 per trade. Option trades are only $3.50 plus $.60 a contract. “ ( Zecco offers 10 free trades per month and $4.50 for each addtional trade.)

I’m going to open an account out here. Will keep updating about the experience for those that might follow.

———————————————-
Edits to post on 13th Oct 2007:
To reflect the changes at Zecco from 40 free trades
a month to 10 per month and increase in addl. trade
from $3.50 to $4.50.

Rule #1 of Investing is don’t lose money, and Rule #2 is don’t forget Rule #1. This is the premise for the excellent book, Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week!.written by Phil Town. (Available here Amazon).

I’ve read an re-read the book it’s been an enlightening experience, which explains in detail how one can go about sucessfully investing in the stock markets. Essentially every investment has to be looked upon as not just buying a stock but owning a company, checking for the 4M’s and its relevance for you: one that has Meaning, Moat, a Margin of Safety, and good Management.

Phil further explains it on his blog as follows (http://philtown.typepad.com/phil_towns_blog/2005/07/yummmmy_becomes.html)

____________________________________________________________________

Here is the definition of each “M” in the 4M’s:

M: Meaning - Would You be ethically proud to own this business — all of it? Is the business something that connects with you so much that if you only were going to live off of one business for the next 100 years, this one is it? And is this one “it” because you Understand it well enough to know it will be there for you long term? And does it track with your personal values?

M: Moat - Does this business have a protective Moat? Does ROIC, and the 4 growth rates — Equity, EPS, Sales, Cash — confirm the Moat?

M: MOS: Margin of Safety - Is a dollar of value available for fifty cents?

M: Management - Does this business have owner-oriented and driven Management with a Big Audacious Goal, or BAG?
____________________________________________________________________ 

In my blog I will be exploring how companies listed in India, on the Indian stock exchange’s stack up when we put them up to the 4M test of Rule #1 investing.

I’ve also noticed that there is an excellent community(http://www.roicommunity.com/) of Rule #1 enthusiasts who have done considerable work in applying the learnings from Phil and have excellent discussions on the same.

————————————————————————————————— 

Below portion added on 11th Oct 2007

There are five numbers that we have to look at to determine whether a business has a Moat is what Phil say’s, refer to this blog post http://philtown.typepad.com/phil_towns_blog/2005/10/the_big_five_na.html