Revisiting Last Week’s Stock Screen

Several readers inquired about Ford Motor Co.’s low price-to-earnings ratio listed in the chart with last week’s Portfolio Strategies feature in Wall Street, California (“Which Blue Chips to Bet On? Here’s What Key Stats Suggest,” Jan. 5).

Ford’s P/E ratio of 2.9 was indeed accurate, but the Telescan Inc. data used for the article were based on actual--rather than operating--earnings.

Actual earnings include any one-time gains or charges, while operating earnings measure the profit generated by a company’s ongoing business.

In Ford’s case, its 1998 profit got a big boost from a gain associated with the spinoff of a division.

For consistency, all 200 stocks in the screen were evaluated based on actual earnings. But even using operating earnings, Ford--the No. 1 stock in the final screen--would have remained in the top five.

Based on operating earnings, Ford’s P/E ratio would have been 10, rather than 2.9. Its PEG ratio (P/E divided by projected five-year annualized earnings growth rate) would have been 1.6, rather than 0.5. Excluding Ford’s $16-billion windfall also would have affected its price-to-cash-flow ratio. P/CF is stock price divided by annual cash flow--or net income plus depreciation--per share. Using operating cash flow, Ford’s P/CF would have been 5.2, rather than 2.2, according to Telescan.

If we had used those operating numbers for Ford only, the top 20 stocks constituting our portfolio would have stayed the same, but the auto maker would have scored 97 total points in our system, rather than 57, and therefore would have ranked No. 4 rather than No. 1.

For the complete ranking of 200 stocks via the Internet, visit https://www.latimes.com/beststocks.