Operating Earnings Yield (OEY)
Using price to earnings ratio to value stocks has proven to be one of the most successful stock selection
tools. By inverting the ratio to look at earnings to price, also termed earnings yield, users can evaluate
companies with either positive or negative earnings. In April, 1997 Ford tested the performance of earnings
yields based on various earnings per share measures including normal, current, Ford’s adjusted operating,
and estimated earnings for the current fiscal year and the next fiscal year. The best performance came
from the operating earnings for the last 3 quarters and the current quarter estimate. Operating Earnings
Yield is like dividend yield in that a higher value is considered better and a lower figure indicates an
overvalued stock. Negative earnings companies have negative Operating Earnings Yields.
Ford Operating Earnings Yield Model (OEY)
Decile Excess Returns & Risk-Std. (%) vs. Ford Universe
12/07 to 12/12
20.0
15.0
Universe Annualized Return
= 5.9%
Universe Standard Deviation
= 25.9%
Excess Returns & Risk (%)
10.0
5.0
0.0
-5.0
-10.0
Decile Decile Decile Decile Decile Decile Decile Decile Decile Decile
1
2
3
4
5
6
7
8
9
10
Excess Return
9.4
4.3
0.9
0.2
-1.9
-3.6
-1.4
-4.5
-6.8
-1.4
Excess Risk
8.4
-0.7
-2.9
-4.9
-5.4
-4.5
-2.5
1.4
5.8
18.2
Top Decile/Group Ford Stock Selection Models
12/07 to 12/12
20
Price/Value
18
OEY Excess Return
Top Decile vs.
Ford Universe (%)
Operating Earnings Yield
16
14
-2.8
50.3
8.8
3.8
13.3
Annual Return
12
2008
2009
2010
2011
2012
Price Momentum
Value Momentum
Earnings Momentum
10
Rel. Earnings Trend
Earnings Trend
Sales Momentum
Share Buyback (-5%)
8
Earnings Variability
Ford Universe
6
Quality Rating
4
2
S&P 500
0
15
20
25
30
35
40
45
Annual Standard Deviation
Performance is based on ranking the Ford Universe from best to worst for the model shown and dividing it into 10 equal-sized groups each month. The group returns represent equal–dollar investments
in each stock each month, with monthly total returns linked to create annual and annualized results. Total returns, which sum month-end percentage price changes and 1/12 of companies’ indicated annual
dividend yield, exclude transaction costs and management fees. The Ford Universe had 4021 companies at the end of 2012.
Quantitative model results can be affected by market environment and are based on historical financial data. Certain material information for a company may not be reflected in models presented.
The performance shown is based on large portfolios and may not be effective on every security. There is no assurance that future results will duplicate past results.
OEY Decile Performance on Capitalization Sectors
Average Annual Returns (%) 12/07-12/12
Large Cap
Standard Deviation
1
2.6
29.5
2
2.7
26.2
3
3.6
23.2
4
5.4
20.7
5
5.0
19.2
6
3.3
19.1
7
2.5
19.9
8
1.1
20.6
9
1.9
22.1
10 Cap Univ.
0.6
3.0
29.4
22.5
Mid Cap
Standard Deviation
8.8
37.0
12.4
28.1
8.6
26.5
5.5
23.7
4.4
23.3
4.1
22.2
2.1
23.0
6.1
24.5
3.4
27.1
2.0
36.1
6.0
26.4
Small Cap
Standard Deviation
14.5
40.6
11.9
31.3
5.9
27.2
7.1
25.4
5.0
22.4
5.9
26.0
5.2
28.1
-1.6
28.5
-2.1
32.1
-4.2
41.7
5.1
29.3
Large, Mid and Small Cap constituents include the top 1000, second 1000, and third 1000 companies in the Ford
universe of stocks when ranked by market capitalization.
OEY Top Decile Annual Excess Return by Industry Group 12/07 - 12/12
15
10
5
0
-5
-10
-15
-20
Correlation Coefficients 12/07 - 12/12
Ford Proprietary Models
PVA
OEY
EMO
PRM
VMO
SHB
QTY
SMO
SED
SDR
EDV
Price/Value (PVA)
1.000
0.679
0.154
0.541
-0.181
-0.550
-0.676
-0.279
0.708
0.614
-0.756
Operating Earnings Yield (OEY)
0.679
1.000
-0.041
0.391
0.020
-0.199
-0.390
-0.351
0.215
0.132
-0.489
Earnings Momentum (EMO)
0.154
-0.041
1.000
0.112
0.246
-0.401
-0.390
0.329
0.616
0.583
-0.432
Price Momentum (PRM)
0.541
0.391
0.112
1.000
0.462
-0.439
-0.598
0.109
0.391
0.245
-0.559
Value/ Momentum (VMO)
-0.181
0.020
0.246
0.462
1.000
-0.113
-0.056
0.427
-0.076
-0.094
-0.012
Share Buyback (SHB)
-0.550
-0.199
-0.401
-0.439
-0.113
1.000
0.746
-0.310
-0.723
-0.577
0.786
Quality Rating (QTY)
-0.676
-0.390
-0.390
-0.598
-0.056
0.746
1.000
-0.134
-0.713
-0.527
0.888
Sales Momentun (SMO)
-0.279
-0.351
0.329
0.109
0.427
-0.310
-0.134
1.000
0.074
0.053
-0.128
Earnings Trend (SED)
0.708
0.215
0.616
0.391
-0.076
-0.723
-0.713
0.074
1.000
0.908
-0.780
Relative Earnings Trend (SDR)
0.614
0.132
0.583
0.245
-0.094
-0.577
-0.527
0.053
0.908
1.000
-0.613
-0.756
-0.489
-0.432
-0.559
-0.012
0.786
0.888
-0.128
-0.780
-0.613
1.000
Earnings Variability (EDV)