Price/Value Model (PVA)
Introduced in 1970, the price to value ratio is the current price divided by intrinsic value of a share as determined by the
Ford Dividend Discount Model. Ford establishes a quality rating (QTY), normal earnings (ENO), and ten-year projected
growth rate (GRO) for each company. The future value of the company is determined by compounding the latest
earnings by the growth rate for 10 years and assigning a nominal P/E ratio to the expected earnings at year 10. The
future value and dividend stream are then discounted by the AAA long term corporate bond rate, modified by the quality
rating, to arrive at the current intrinsic value.
A ratio greater or less than 1.0 indicates the stock price is above or below, respectively, its intrinsic value. Ford also
produces a comparison of a company’s price to value ratio to the average price to value of the Ford Universe (P/V
Relative to Market (PVR)) and to a company’s own five year history (PV Ratio/5yr Average (PVH)).
Ford Price/Value Model (PVA)
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
-15.0
Decile Decile Decile Decile Decile Decile Decile Decile Decile Decile
1
2
3
4
5
6
7
8
9
10
Excess Return
13.7
5.1
2.0
1.2
-0.3
-0.6
-2.7
-4.9
-6.6
-9.6
Excess Risk
18.5
7.3
2.4
-0.4
-2.6
-2.9
-4.1
-3.7
-2.9
-2.1
Top Decile/Group Ford Stock Selection Models
12/07 to 12/12
20
Price/Value
18
PVA Excess Return
Top Decile vs.
Ford Universe (%)
Operating Earnings Yield
16
14
-6.2
161.7
11.4
-11.5
11.9
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 price changes and 1/12 of companies’ indicated annual dividend
rates, exclude transaction costs and management fees. The Ford Universe had 4021 companies at the end of 2012.
Quantitative model results are 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.
PVA Decile Performance on Capitalization Sectors
Average Annual Returns (%) 12/07-12/12
Large Cap
Standard Deviation
1
5.0
33.2
2
3.8
25.6
3
5.0
23.7
4
6.4
21.8
5
2.6
21.3
6
5.2
20.0
7
3.3
20.6
8
-1.0
20.2
9
1.6
20.9
10 Cap Univ.
-3.2
3.0
23.7
22.5
Mid Cap
Standard Deviation
12.1
41.2
9.3
31.0
10.1
28.1
7.9
26.4
4.1
25.9
4.3
23.4
5.4
24.2
0.5
22.4
3.4
24.3
0.6
24.7
6.0
26.4
Small Cap
Standard Deviation
9.4
46.0
9.5
36.7
8.8
32.5
6.0
30.4
9.0
26.0
4.4
26.2
1.8
26.0
7.5
26.0
-3.9
27.9
-5.3
26.5
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.
PVA Top Decile Annual Excess Return by Industry Group 12/07 - 12/12
35
30
25
20
15
10
5
0
-5
-10
-15
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)