Stock Selection Models | Value
Value Momentum Model
The Ford Value/Momentum Model was introduced in March 1999. This model combines acceleration of earnings growth with relative value and price momentum. Ford's Earnings Momentum, IBES Standard Unexpected Earnings, and the one month change in the IBES consensus earnings estimates for FY1 and FY2 are combined with earnings yield (based on Ford's operating earnings for the last three quarters and the current quarter estimate) and Ford's Price Momentum.
Dividend Discount Model
Introduced in 1970, the price-to-value ratio states the ratio of current price to intrinsic value for each company, as determined by the Ford Dividend Discount Model. Ford establishes a quality rating, normal earnings and ten-year projected growth rate for each company. The future value of the company is determined by compounding the latest earnings by the growth rate for 10 years and assigning a nominal P/E ratio to the expected earnings at year 10. The future value and dividend stream are then discounted by the AAA long term corporate bond rate, modified by the quality rating, to arrive at the current intrinsic value.
Operating Earnings Yield
Operating Earnings Yield is an earnings-to-price ratio based on the last 3 quarters of operating earnings and the current quarter’s estimate. In historical tests of various earnings series in price-to-earnings ratios—normal, current, operating, estimated FY1, FY2 we found that operating earnings for the last 3 quarters and the current quarter estimate produced the most reliable results. Ford has been creating an operating earnings series by adjusting reported earnings for unusual revenue and expense items, such as one-time reserve provisions, litigation settlements, and pension fund terminations, since 1974.