Readers of my articles may know I'm a fan of YCharts.com, which displays data from a company's Securities and Exchange Commission filings in chart form, so you can see how things such as revenues and price-to-earnings ratios have changed over time. Recently, YCharts has started keeping track of economic indicators and broader market-related data. A recent update lets users overlay these indicators over company charts. Below are a few of the ways this update will help investors better understand their investments.
Keeping an eye on foreign investments
Investors in MercadoLibre (Nasdaq: MELI ) have been mystified the last few weeks as to the cause of a nearly 40% explosion in the stock price. No material news has come out, no analyst upgrade, nothing even in the way of a technical analysis pattern. But then there's this:
This shows MercadoLibre's stock price compared to the exchange rate between the Brazilian real and the U.S. dollar. MercadoLibre is an Argentine company, but it collects almost 57% of its revenues in Brazilian reais. The March low in MercadoLibre's stock corresponds almost exactly to a low in the real/dollar exchange rate, before the real strengthened powerfully against the dollar. While no material change happened in MercadoLibre's business, its revenues will translate into more dollars because of a favorable exchange rate.
Tracking cost changes
It is also possible to track the effects of input cost changes on a stock price. You'd ordinarily expect an increase in the price of a commodity to adversely affect the stock of a company that relies on it. But in some cases, the reverse is true. Take Cal-Maine Foods (Nasdaq: CALM ) .
Cal-Maine's stock tracks so closely with the price of soybeans because corn and soybeans are the two major sources of feed for Cal-Maine's chickens. Eggs are also a commodity, and their price is determined by the forces of supply and demand. Egg producers like Cal-Maine can't easily pass on increased input costs to customers, but what they can do is reduce production to cut feed costs. Because eggs are a commodity with relatively inelastic demand, lowering production (and thus supply) raises the price of eggs. Despite higher costs, egg producers are able to eke out a slightly higher profit when this happens.
Finding a proxy for an economic indicator
A fellow I follow on Twitter recently expressed a desire to invest directly in U.S. employment figures. My suggestion to him was to use Paychex (Nasdaq: PAYX ) or Automatic Data Processing (Nasdaq: ADP ) as a proxy. Both are companies that are directly associated with employment and benefit when more people need human resources forms processed.
While either stock would work as a decent proxy, we can go a step further. Using the data export feature, along with a bit of Excel wizardry, we can correlate changes in the stock price of Paychex or ADP against changes in average initial claims. The result is that, over the last five years, Paychex has a -0.86 correlation to average initial claims, while ADP has a -0.76 correlation. What this means is that Paychex shares are more negatively tied to unemployment than ADP. As unemployment rises, Paychex usually takes a harder hit, but once unemployment starts to go down, Paychex should benefit more (statistically speaking).
Comparing a stock's relative value to the market
One of my favorite new features is the ability to compare certain valuation stats between a stock and the broader S&P 500 index.
While Wal-Mart (NYSE: WMT ) has often been a value investor favorite, its earnings yield -- essentially the inverse of the price-to-earnings ratio -- has frequently been less than that of the S&P 500. This may explain why Wal-Mart stock has idled for a decade and underperformed the index. Meanwhile, Aflac (NYSE: AFL ) has consistently had a higher earnings yield than the market, by an average margin of close to 1 percentage point. Despite being consistently cheaper than the market, Aflac stock has dramatically outperformed the S&P 500.
Find your own uses
The new update to YCharts provides a lot of opportunities to see how different market factors affect the performance of your own stocks. But you don't have to take my word for it. Play around with it and find some of the many other uses not covered here.