What makes a stock "unsustainably cheap"?
Chicago Investment Analytics first looks at the quality of earnings, including such factors as earnings per share shortfall, inventory accruals and capital expenditures.
But financial data do not tell the whole story. The Chicago-based research firm, which was acquired in November 2000 by Charles Schwab & Co. Inc., also looks at "management signaling": Management issues stock when it is most overpriced, and buys it back when it's cheapest. In addition, the firm - known by its acronym, CIA - looks at investor sentiment.
Taken together, these three factors separate "cheap stocks from unsustainably cheap stocks," said Brian Burda, director of research, in a company webcast.
CIA builds these insights into its Value Alert stock selection model, which recently was revamped for the first time in five years. Avoiding momentum-based factors, the quantitative model picks value stocks that are likely to show stock price appreciation over the next three to 12 months, firm officials claim. Annual subscriptions start at $20,000.