Teledoc Health

Our composite score in action.

Our Composite Score In Action

In a post over the weekend, I wrote about our composite score and the ten metrics that go into it.

In a nutshell, we look at these ten metrics:

• LikeFolio’s earnings score based on social data. The higher the number, the more bullish, the lower (more negative) the number, the more bearish.

• Portfolio Armor’s gauge of options market sentiment.

• Chartmill’s Setup rating. On a scale of 0-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.

• Chartmill’s Valuation rating. On a scale of 0-10, this is a measure of fundamental valuation incorporating common rations like P/E, PEG, EBITDA/Enterprise Value, etc. For bullish trades, the higher the better the Valuation rating the better; for bearish trades, the reverse.

• Zacks Earnings ESP (Expected Surprise Prediction). This is a ratio of the most accurate analyst’s earnings estimate versus the consensus estimate.

• Zacks Ranking. This goes from 1 to 5, with #1 ranked stocks being their most bullish ones. They grade on a bell curve, so most stocks we see end up with their #3 (neutral) ranking.

• The Piotroski F-Score. A measure of financial strength on a scale from 0-9, with 9 being best.

• Recent insider transactions.

• RSI (Relative Strength Index). A technical measure of whether a stock is overbought or oversold, with RSI levels over 70 suggesting a stock is overbought and RSI levels below 30 suggesting it’s over sold.

• Short Interest.

And we boil them down to a composite score, based on how stocks exhibiting those metrics have performed in the past.

A Real World Example

Here’s an early example this week of our composite score in action. Our composite score for Teledoc Health (TDOC 0.00%↑) was -0.4 ahead of earnings:

Teledoc (TDOC) (-0.4)

1. Social data: +24

2. PA Options sentiment: Neutral.

3. Setup rating: 8

4. Valuation rating: 3

5. F-Score: 6

6. Recent insider transaction(s): Net open market sales, peaking last March.

7. Zacks ESP: 0%

8. Zacks Ranking: 2

9. RSI: 54

10. Short Interest: 11.7%

One thing I’m trying to determine is what is the minimum composite score I want to see before betting on a stock or the maximum score I want to see before betting against it. The was no way I was going to bet on TDOC given its negative composite score, but -0.4 seemed to close to neutral for me to bet against it. But at least in this case the composite score kept us out of what would have been a losing trade, betting on TDOC to go up.

We’ll see if it makes us money on the trades we do take this week.