Research Firm: Argus

Argus Research Company, based in New York City, was founded in 1934 by economist Harold Dorsey, and was one of the first firms to provide systematic, independent research and analysis on U.S. equities. The Argus staff of analysts, economists and strategists offers forecasts and ratings on the economy, interest rates and industries, as well as objective investment research analyzing public companies. Argus is a subsidiary of Argus Research Group, which also includes Argus Investors Counsel, Inc., Vickers Stock Research Corp., and the London-based Argus Vickers plc. Argus is a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

Methodology

Argus has developed a six-point system for analyzing the stocks in our Universe of Coverage. We believe that this system, combined with our independence, gives us an edge as we develop our ideas, forecasts and ratings. The system, a blend of top-down and bottom-up analysis, begins with an Industry Analysis. Our first step is to formulate a forecast for the economy and interest rates, then we collaborate with the industry analysts to determine which industries are expected to perform well over the next one-to-two years. Within the industry, an analyst will determine a specific company's competitive position and its prospects.

Growth Analysis is the second step in the process. Looking forward, we forecast growth in sales, earnings (operating and/or GAAP), dividends and cash flow for each company by studying growth in individual product lines, in margins, in the industry and in the economy. Looking backward, we smooth a company's historical growth rates in numerous metrics, including balance sheet items, and analyze them versus the company's peers and the market. In our analyses, we comment about the "quality” of a company's earnings.

Financial Strength Analysis is the third step. We determine a Financial Strength rating for each company in our Universe of Coverage. To assess financial strength, we conduct an elaborate ratio analysis, moving beyond the financial statements and into the footnotes of a company's publicly available documents to fully flesh out obligations and opportunities.

The fourth step is a qualitative Management Assessment. In short, our analysts need to know management in order to make a recommendation on a stock. To get to know management, they attend meetings, presentations and road shows with senior managers, travel to corporate facilities and participate in conference calls. We also host management meetings in our New York City offices.

Risk Analysis is the fifth step. We consider risk from both a qualitative and quantitative standpoint. On a qualitative basis, we review each company in the context of Harvard Professor Michael Porter's Five Forces model to determine potential threats. On a quantitative basis, we analyze proprietary data from our sister company, Vickers Stock Research, regarding institutional and insider ownership trends. We conduct a regression analysis to determine the correlation of a company's stock returns with the market's returns, and we determine the predictability of the relationship. We also measure the volatility of key financial statistics such as sales and earnings growth, and margins. Finally, we determine a fundamental floor for every stock in our universe through our Valuation Analysis.

Valuation Analysis is the final step. Over the years, we have developed a multi-pronged model to help with valuation. In a first step, we compare a company against its peers on metrics such as P/E, Price/Sales, Price/Book and Price/Cash Flow ratios, and dividend yields. Second, we analyze stock price activity in terms of annual sales, cash flow, dividends, book value, earnings, and earnings relative to the S P 500. We determine normal ratio "ranges” for these various parameters, and then adjust the ranges going forward based on trends in a company's growth and profitability. We apply the adjusted ranges to our key sales, earnings and cash flow forecasts to arrive at a normal trading range. Once the range has been determined, we use two-stage and three-stage dividend discount modeling to arrive at a target price, which we estimate can be achieved over a 12-month period.

A company in the Argus Universe can be designated a SELL for not passing any of the Six steps. Most often, stocks rated SELL are either fully valued, face extraordinary risks, or are in an industry that is expected to underperform the broad market.

Coverage

Our team of equity analysts offer qualitative rating and report coverage on approximately 500 stocks, while our quantitative methodology offers rating and report coverage on an additional 1,150 stocks.

What's Provided on Fidelity.com?

Argus provides institutional-quality analyst reports, quantitative reports, market and economic commentary and forecasts, a Focus List of timely Analyst ideas, views on sectors, thematic research and fixed income strategy.