Adjusting Q-Scores for International Sales

In a series of three articles we published recently, each and every one of the 30 stocks we hold was analyzed for international revenues contributions. When we first put together the Q-Score formula, we were “screen scraping” revenue numbers from Yahoo and some of these were not that accurate. 8 of our stocks had minor adjustments of less than 5%. What this means is that the percentage of international revenues we estimated before was off by 5% or less in either direction. This affects Q-Scores but not by much. On the other hand, 4 of our stocks had major adjustments to international revenues that needed to be made as seen below:

  • Chubb (CB) 
    Before: 70%
    After: 43%
  • Dover (DOV)
    Before: 77%
    After: 34%
  • Sherwin Williams (SHW)
    Before: 50%
    After: 16%
  • VF Corporation (VFC)
    Before: 36%
    After: 53%

What this means is that the Q-Scores for the above 4 stocks will change rather dramatically as seen below:

  • Chubb (CB) 
    Before: 17.22
    After: 16.22
  • Dover (DOV)
    Before: 18.80
    After: 17.00
  • Sherwin Williams (SHW)
    Before: 15.07
    After: 13.57
  • VF Corporation (VFC)
    Before: 17.98
    After: 19.08

The question we have now is, what effect would these Q-Score adjustments have had during our industry selection exercises? Let’s take a closer look.

For VFC, there are no changes since the Q-Score score increased from 17.98 to 19.08 meaning in stay in the same spot ranking wise. Below you can see the original ranking table.

Consumer Discretionary Stocks Q-Scores

For CB, there is no change since a Q-Score of 16.22 still places it above TROW. Below you can see the old ranking table:


For SHW, we can see that with a new Q-Score of 13.57 they fall sharply in the updated relative ranking chart seen below:


This means that ECL now becomes more attractive than SWH and we should look at switching the two out. A change might be needed here.

For DOV, we’ve dropped down to 17 which places us right next to EMR/GWW/ITW as seen below:


This gets a bit tricky now since we have 4 stocks to choose from with all having roughly the same Q-Score. However, we’re going to stay with DOV because of the original decision we made which stated:

Q-Scores can and will change over time so we’ll evaluate this sector over time to watch the Q-Score trends and if need be, we have a number of stocks such as EMR and ITW with relatively strong Q-Scores that can sit on the bench as potential replacements if DOV or PH run into chronic problems with their business models.

Out of all the stocks in the entire list, Dover has been paying and increasing their dividends the longest and there is something to be said for that. Probably the most important factor out of the 7 we use to calculate the Q-Score is that of “years increasing dividends” and Dover is a clear leader in this respect (though EMR/PH/MMM are not far behind). No change is needed.

As a result of this analysis, we see that we might need to change out SHW with ECL as it has a higher Q-Score. Since we’re only just beginning to build a position in SHW, this becomes an easy exercise. However, we want to have as little turnover as possible and don’t want to constantly re-balance every time a Q-Score changes. In this case we had incorrect data which caused such drastic changes and we wouldn’t expect this to happen again in the future.

In a coming article, we’ll take another look at the Materials sector with all the international revenues checked and latest data refreshed so that we can make some decisions about what we’re going to do with SHW.

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