What's the Difference Between the Value Line Appreciation Potential and the Hays Valuation Composite?

The Hays Valuation Composite has shown the US large-cap stock market (S&P 500) to be the most undervalued it has been in 40 years over the past 4 years or so.  Today, we want to explain the difference between the message our Hays Valuation Composite is showing (extremely undervalued) and what the Value Line Appreciation Potential model is suggesting that the average stock is now selling at levels that in the past shows these stocks in an expensive zone.  You can see the distinct differences in the charts shown below.


The composite above, the Hays Valuation Composite, which uses the forward expected earnings for the S&P 500 and compares it with bond yields and inflation trends, shows the S&P 500 extremely undervalued.  You can watch a short video on the Hays Valuation Composite to learn even more by clicking here.

The next graph shows the Value Line Appreciation Potential, which takes Value Line's analysts' earnings expectations for their 1700 stock universe for the next 3-5 years and compares it with their expected price-to-earnings ratios.  This is much more qualitative, and does involve their analysts' emotionally influenced expectations, but you cannot argue with the success of this excellent gauge of potential appreciation potential...and this metric's recent move into the bottom 20% of historical readings is something of note.


One of the biggest differences between these two metrics is that the Hays Valuation Composite is focused on a more large-cap universe (the S&P 500), while Value Line uses an equally-weighted gauged derived from their 1700 stock universe making it more of a reading of the "average" stock.  So, the large-cap vs. mid-cap question comes into play, and sometimes it can be a very big deal...such as it is today.


Don Hays

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