Value Line Is Valuable

Value Line is an important investment tool that helps me find new investment ideas. Before I tell you how I use it, let me tell a fun story.

Back when dinosaurs walked the earth, about 1984, I worked for a large bank trust department that managed about $2 billion. One day my old boss decided we should manage our institutional assets “using only a Value Line”, and completely eliminated the morning calls from over 30 Wall Street brokers. My boss ordered no incoming calls from Wall Street starting Monday. We tried to discuss our portfolios without the influence of Wall Street. The idea lasted only a few days because the brokers simply waited on the street corner and grabbed the portfolio managers as they entered the building in the morning. I guess we decided it was too dangerous to let institutional brokers roam the streets of Dallas, so the idea was canceled.

To this day I strongly believe we would been better off, “using only a Value Line”, and ignoring Wall Street.

When I stared writing this blog the manager I consult with started a new subscription to Value Line. Here is what I got from edition #9 dated January 6, 2023:

1. Value Line helps me find new ideas. Their universe is unique. I had never heard of an Israeli company called Kornet Digital - KRNT - a maker of capital equipment for the apparel industry. The stocks is down from $150 to $25, and could be a very interesting new idea.

2. Value Line reminds me of old ideas. I have always been a fan of John Bean Technologies - JBT. They make great capital equipment for the food processing industry. I really think if I had been using Value Line earlier, I would have caught this stock when in fell to the $80’s in October. Value Line is great for catching companies that “do not screen well” like JBT.

3. Value Line gives me a simple picture of a company that can sometimes “jump off the page” as an investment idea. Whirlpool - WHR was in this addition. There is no longer is an appliance industry, so they have been thrown in Diversified Industries. WHR has cut shares outstanding from 78 million to 54 million, and earnings have never really been below $14/ share for 10 years. The stock is only $147. I really should be stepping up to WHR, but I am letting “macro” concerns override my judgement. Let’s see how that works out.

4. Value Line”kicks me” to look at faintly held ideas that other managers own. I know Murray Stahl really likes Intercontinental Exchange - ICE. After reading edition #9 I now a have a 10 minute knowledge of this company. It looks a little expensive, buts let’s revisit ICE it in 3 months (the next time a new edition #9 will arrive).

5. I also love the index that comes with each issue. It has a list of all untimely stocks ranked 5 in Value Line’s system. Since Value Line relies heavily on relative momentum, this list of 5’s is a goldmine of new ideas for “buy low - sell high” value managers. The index also has great lists of low price/book stocks and high yield stocks.

If you want to save $400 dollars you can try to recreate all this using free data and screens, but I find that difficult. I will always take longer to read a physical document, but anything on a computer screen, I will often only glance at.

Here is what I look at when I read a Value Line company page:

1. I look at the earnings pattern. Value Line does a great job of adjusting earnings for non-recurring items. I trust them 10x more than any data source. This is critically important.

2. I look at the pattern in shares outstanding and the balance sheet (especially Debt Due in 5 years) to understand company history.

3. I look very carefully at the direction of the little dotted line in the stock chart to understand when the stock has out-performed and under-performed the market.

4. I look at the 18 month target price range for the stock. This is often a reflection of the analyst’s opinion, rather than the quant picture reported by the rating system.

5. I look to see if there are any large and interesting holders of the stock.

I try to spend 4-6 hours with each issue of about 150-200 companies. I learn something new every time.

It is nice to have Seeking Alpha, Guru Focus, and the other modern tools, but if necessary, I think I could still manage a portfolio “using only a Value Line”.

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I started my season long fantasy baseball league yesterday. I play is sometime called the NFBC Draft Champions league. It is a 15 team, 50 round draft, that can take a month to complete. This morning I was considering whether backup catcher Riley Adams would cut into Keibert Ruiz’s playing time in Washington. Let me know if you have any sleepers. I am always looking for value. I use a website called Rotowire.com, which is really the Value Line of fantasy baseball.