2. The most comprehensive program for NAIC analysis
Doing the SSG Analysis
The most comprehensive program for NAIC analysis

3. Load a Company
Use the Load Company button to load a company from the database.
For NAIC Datafiles also use Load Company and then the Import NAIC button.
For other formats review the manual or Help file.
Major operations for Stock Analyst PLUS! are placed in the ‘fixed’ toolbar. Loading a company from the SA DB (database) is as simple as clicking the ‘Load Company’ button. ‘New Company’ allows you to enter data for a company not yet in the SA database.
SA+ has several importing file formats. These include:
BIN - binary format for exchanging data between SA users SSG - the standard NAIC format (S&P datafiles) NAIC’s PERT file format
ZIP - to import directly from compressed NAIC data diskettes Prospector link - to load files identified with the screening program
Toolkit users can export data in SSG format, which is compatible with SA.
Because SA+ uses the most amount of data, exporting/importing data in other than BIN format will lose some data.

4. SSG Parts 2 to 5 Evaluate a company based on
Quality (Evaluating Management, Part 2)
Value (P/E History, Part 3)
Safety (Risk/Reward, Part 4)
Potential Return (Part 5)
The objective of the Stock Selection Guide is to find well-managed quality growth companies that are fairly valued.
Growth is determined in Part 1 of the SSG. Parts 2 to 5 help us measure other characteristics.

5. Part 2 Evaluating Management
Measures % of
Profitability
ROE
Debt (optional setting)
Quality management is measured by its performance in these areas.
Consistent performance indicates the management team is in control of their company’s situation.
Look for:
1) consistent yearly results
2) high values for 2A and 2B relative to industry
3) low or acceptable debt
Cont.

6. Evaluating Management
Trend:
Compares recent 2 years’ results to historical 5-year average.
Variances are ++, +, -+, Even, +-, -, --
Strike-out exceptional years
For debt, a negative trend shows debt reduction.
-+ indicates an improvement (for 2A and 2B) and thus a better situation than +- which indicates a worsening case.
The trend is determined by comparing the 5-year average to the last 2 years. The numbers must vary at least 5% from the 5 year average to be shown as a change.
For Debt (2C), a ++ trend indicates that debt is increasing.
Cont.

7. Evaluating Management
Additional Graphics
Graphs management’s results in Part 2
Helps visualize trends
Seeing Part 2 as a graph helps us to understand the numbers in Part 2.
An experienced investor may want to explore the relationships of Part 2 by reviewing individual data in the Selected Graphics section for the SSG graph.
Suggested relationships are: Common Equity, Debt, Number of (outstanding) Shares, and Tax Rates. These results may provide more insight into the company’s situation.
Cont.

8. Evaluating Management
Add Judgment
to management’s trend
R - resets to computer-calculated trend
Should you disagree with the trends, you can change them to reflect your assessment.
Use the ‘Add Judgment’ button on the Company Toolbar to open the window. Enter your choice in the appropriate cell. Click the R button to reset the cell to the computer-calculated number.

9. Part 3 Price/Earnings History
Dividend and yield items are included in this section. You may compare current values to historical data.
Depending on the data, you may choose to alter the computed values to reflect your judgment.
Look to buy a company whose valuation is reasonable. Reasonable means the current P/E is the same as or lower than the historical average P/E. This will show a relative value (RV) of 1 or less.
For fast-growing companies, you will want to base the valuation on expected future EPS.
The next 4 slides deal with these details.
Helps to determine if stock is fairly valued
Cont.

10. Price/Earnings History
For each year review
price variations
P/E variations
payout
The easiest companies to study (and often the most successful investments) are those that show consistent results year after year.
Investors who have difficulties in applying judgment should confine their studies to steady performers. (Look for SSG graphs with consistently upward lines.) As knowledge and confidence grow, more complex situations requiring extensive judgment can be tackled.
Each set of figures should show consistency
Cont.

11. Price/Earnings History
Judgment Options
exclude outlier
alternate values
weighted vs. simple average calculations
Outliers in Part 3 are independent from those in Part 1 (SSG graph).
Using weighted averages gives greater importance to the most recent information. The calculation is based on an arithmetic progression, ie. the current year is multiplied by 5, the previous year by 4, etc.
Choosing between the two average calculations is a user option (Options menu item).
The user can always choose his/her own value. This is especially appropriate if the circumstances of the company are expected to change in the near future.
Cont.

12. Price/Earnings History
See the EPS used for P/E and relative value calculations
Valuation based on
current P/E
current relative value
projected P/E and projected relative value
All items dealing with price are indicators of value. The most common value relationship is Price to Earnings. However P/E needs to be compared to other relationships to be meaningful.
Current P/E should be compared to the historical average P/E. This is called relative value. Also compare P/E to EPS growth (Peter Lynch’s ratio) to find companies where the P/E is less than the growth rate. Compare P/Es of companies in the same industry, etc.
One of the most common goals of investors is to avoid buying a company which is overpriced. Buy a well-managed growth company when the current P/E ratio is the same or less than the average P/E. Beware very low P/Es ( or less) and investigate for cause.
Buying at a lower than average P/E allows for ‘P/E expansion’ to increase share price at a greater than normal rate.
Cont.

13. Price/Earnings History
See how the projected EPS is calculated
Three ways to project P/E and Relative Value
projected quarterly data
ACE (analysts’ consensus estimate)
EPS projected growth (from graph)
Stock Analyst PLUS! provides 3 options for calculating projected P/E and relative value:
1) estimated (projected) quarterly EPS data
2) professionals’ EPS projections (ACE)
3) your own projection of EPS in the SSG Graph
Which one you use is dependent upon which data you have. (This choice is set in the Global Options window from the menu line.)
Projected EPS is especially important for growth companies (those growing at +15%). Because the market values growth companies on expected EPS, the price tends to rise faster than the earnings do. Projecting EPS up to 4 quarters ahead compensates for the rise in price due to expectations.
For more details on this topic, review the SA+ manual section on ‘Using a Leading PE Calculation’.

14. Part 4 Risk and Reward
forecasts the potential high and low prices for a 5-year period
determines price zones
calculates the upside/downside ratio
Part 4 contains critical steps of your SSG stock study. Setting the potential high and low prices for the stock requires careful consideration of the company’s ability to grow successfully.
From these price settings your zoning and upside/downside ratio are constructed.
Cont.

15. Parts 4C and 4D are safety indicators
Risk and Reward
The critical objectives in Parts 4A and B are to set Forecast High and Forecast Low prices.
Part 4A: EPS come from SSG graph. P/E is calculated according to data and options used.
Part 4B: Low prices are calculated from data.
In both parts, judgment should be used to select values which reflect your expectations for the company.
Part 4C: Price zones can be divided as 33/33/33 or 25/50/25. The setting is chosen within the menu line Options item.
If the current price is in the Buy Zone, the upside/downside will be 3 or higher.
Part 4D: Calculates the upside/downside ratio to indicate your risk. Large values for U/D indicate a poor selection for the forecasted Low Price.
Review the appropriate section in the SA+ manual for more details.
Parts 4C and 4D are safety indicators
Cont.

16. Low Price Selections
choose the one that best reflects the company’s situation
OR ELSE...
type in your own price
Generally the calculation of
Part 4 B a) is used for growth type companies Part 4 B b) is used for cyclical companies Part 4 B c) is for companies with recent adversity Part 4 B d) is for companies that pay a higher than normal dividend yield (i.e. greater than 50% of bank rates)
The other selections are for instances where none of the above seem appropriate.
The ultimate choice is what you consider appropriate. You can also enter that value directly.
Cont.

17. Part 4 Judgment Add Judgment
whenever computed values don’t reflect your expectations for the company
R button resets data to computer-calculated values
Judgment is added in Part 4 by clicking the ‘Add Judgment’ button on the Company Toolbar (or the ‘View’ menu item).

18. Compounded Calculation
Part Year Potential
Shows your potential gains based on
price appreciation
dividends
Compounded return is the proper way to measure investment return. This is shown in Part 5 of SA+.
Total return is comprised of price appreciation as well as dividend yield.
Compounded Calculation
Cont.

19. 5 -Year Potential
Investors interested in income will want to assess the contribution of dividends to the total return. Well-supported dividends (Payout <60%) provide a level of safety. Also, a dividend yield of better than 50% of bank rates can provide a support to the stock price.
A Potential Return of > 15% is another positive indicator. Figures > 30% should be suspect.
The final indicator (of several) in the SSG to help you make an investment decision.

20. The most comprehensive program for NAIC analysis
Demonstration
The most comprehensive program for NAIC analysis