Sunday’s Oregonian carries an article about “guru” Ken Fisher, author of Super Stocks in 1984, who pioneered the concept of the PSR or “price to sales ratio.” It was a remarkable concept, one this retired stockbroker embraced at the time. I was tired of trying to estimate earnings that were subject to all sorts of machinations. Quality of earnings varied from industry to industry and we couldn’t even rely on audited annual reports. John Reese writes in Forbes in a piece entitled Super Stocks For Ken Fisher Fans

…Fisher found that the sales of what he called “Super Companies”–those that were capable of growing their stock price three to 10 times in value in a period of three to five years–rarely declined significantly. To find these firms, Fisher thus developed the PSR, which compared the total price of a company’s stock to the sales the company generated.

We learn in the Oregonian article by Michelle Roberts that Fisher Investments has purchased 120 acres land in Vancouver for his headquarters in Camas, Washington. The attraction for Fisher is that this area is friendlier to businesses in general and employees in particular.

In the Forbes article Reese, who is founder and CEO of Validea.com and Validea Capital Management, writes

Given my Fisher-based model’s strong outperformance over the past year–and the fact that it now boasts the best long-term returns out of all my Guru Strategies–I thought it would be a good time to take a look at some stocks that it’s currently keen on. To be clear, these stocks haven’t been picked by Fisher, but I believe they do fit the quantitative profile of those “super stocks” that he wrote about in his acclaimed book.

Schnitzer Steel Industries (nasdaq: SCHN)
Marathon Oil (nyse: MRO)
ConocoPhillips (nyse: COP)
TrueBlue (nyse: TBI)
Dress Barn (nasdaq: DBRN)

We’ve had a rough patch in the market lately, so I checked to see how these stocks fared since the March 10, 2008 article in Forbes by Reese:

Company -- March PSR -- Price Then -- High -- July PSR -- Current Price

1 SCHN ----- .72 ----------- $57.51 ----- $118.55 --- .87 ------ $90.00
MRO -------- .58 ----------- $50.35 ----- $55.51 ---- .57 ----- $51.24
2 COP ------- .66 ----------- $$77 ------- $$95.96 --- .76 ----- $91.84
TBI ---------- .40 ----------- $11.60 ----- $14.65 ---- .39 ----- $12.85
DBRN ------- .58 ----------- $11.66 ----- $15.96 ---- .57 ----- $13.42

Fisher had different acceptable PSR ranges for different types of stocks, which Reese’s model reflects;

1. In the case of cyclical “smokestack” companies like Schnitzer, PSRs between 0.4 and 0.8 are indicative of good values. At 0.87, Schnitzer no longer makes the grade.

2. As a noncyclical company, ConocoPhillips needs to have a PSR lower than 0.75 to pass my Fisher-based model; at 0.76, it now just misses the upper limit.

Based on Fisher, Reese’s portfolio of five stocks has performed well and three are still cheap. IMO, ConocoPhillips looks the best technically.

ABOUT THE AUTHOR

Mike Landfair is the editor of Mover Mike. He is a retired stock broker, and now supports his wife's furniture business. He is her warehouseman, deluxer, and marketing guru. In addition, he writes poetry and finds abundance, health and joy in the world around him while pondering life's little mysteries.