Behind the Snapshot Opportunity Score

Dividend SnapshotThe Snapshot Opportunity Score is my proprietary formula for assessing the purchase timing of a stock. It’s a great technical indicator to see if a stock is ripe for purchase compare with others in its sector or the screener. It’s not a score that identifies the long term value of a stock as that decision relies on a thorough evaluation of the business – also known as a qualitative evaluation.

Investing can be quite simple in a way. I have a short list companies I would be happy to own and I just ignore all the thousands other companies. I use my Snapshot Opportunity Score to identify if the stock is priced right while focusing on the sectors I need to buy into based on my diversification criteria using a portfolio tracker.

Related: How To Screen Dividend Stocks

Investment Research – 2 Parts

Selecting a stock to invest in is 2 parts. I like to screen by quantitative first as sometimes you find new companies that you can research for quality analysis. So we start with the data, then the quality.

Part 1 – Quantitative Analysis

Quantitative analysis is where the numbers come in and there are many ways. Some will look at the value approach based on the Graham Number, others will look at technicals. Those are 2 extreme approaches on the far end of the spectrum. Some investors are focused on debt load while some focus on future earnings. The reality is that we are all working from the same historical data released by the companies and you have to find the numbers that speak to you. For me, it has been the dividend triangle and the Chowder Score

Part 2 – Qualitative Analysis

Qualitative analysis of the business is necessary. Do you know what the company does? How they generate revenue? How they control costs? and what the long term viability of the business is. You need to be satisfied and on board with the company. Imagine your second cousins starts a business and needs some seed money, you have a lot of questions before you give him and loan and more importantly, you want to know what’s in it for you. Guess what, investing in stocks is exactly the same thing.

For example, I do not have oil producers because I don’t believe Canadian oil producers are setup to succeed. That’s a qualitative evaluation of the sector. I write down why I buy a stock in my portfolio which is a reminder of why I invested in the company.

The Snapshot Opportunity Grade

A grade is assigned to each stock which represent a score range. It makes it easier to understand the potential for the stock and avoid fussing over a score of 72 vs 78 for example. The assigned grade falls within one of the following grades:

  • A* Grade : When the grade is above 90%, the grade A star is assigned. This is either an amazing opportunity not to be missed or a dud out of favor. Do extra research!!!
  • A+ Grade : A score above 80% reflects what is usually a solid entry point all considered. Just make sure the business quality is what you are looking for.
  • A Grade : A score above 65% reflects a stock in a normal range.
  • B Grade : A score above 50% reflects a stock showing a struggle against some metrics and needs further investigation.
  • C Grade : A score above 40% reflects a lack of proper trends or more metrics with abnormal patterns. Be sure to understand why the metrics are where they are.
  • D Grade : A score below 40% highlight a stock in the dog house or it could simply be very overvalued. I have seen Visa at this level pointing to high valuation. Again, do your research.

The Snapshot Opportunity Score

Finding the right numbers for the calculation is where the magic is. What I have realized over time is that you cannot have number targets that are too aggressive because you eliminate a lot of options. Some numbers also need to be in line with the sectors so the target in some cases is based on sector averages.

I do have historical data for dividends and EPS and in reality, it’s often what you pay for since it’s a manual process and a bit time consuming.

The Technical Ratios:

  • P/E : Relative strength compared with sector.
  • 52 Week Range : The lower in the range the higher the score for an entry point
  • Yield :Relative strength compared with sector.
  • Payout Ratio : Compared against 10 year average when available
  • Market Cap : Bonus multiplier with a target of $20B or more (+/- 10%). I normalize it between 0.9 and 1.1 and use that to multiply my previous total of the first 4 criteria.
  • Dividend Growth: 10 year tracking
  • EPS Growth: 10 year tracking
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