|  OCT 1990

Can Stock Fundamentals Protect You? by Lewis Carl Mokrasch, Ph.D.

Can Stock Fundamentals Protect You? by Lewis Carl Mokrasch, Ph.D. To use fundamental information to find the characteristics of crash-proof stocks, I correlated the price action of stocks during the October 1987 crash with their fundamental statistics. I used data from Barron's and the Media General Financial Weekly Market Digest to select two groups of stocks—one whose prices fell more than 5% in the crash (the Decliners) and another whose prices fell less than 5%, or even rose (the Nondecliners). Figure 1 gives those statistics for which there was no significant difference between the means of the Decliners and the Nondecliners. Surprisingly, the yield, price/earnings ratio and the return on equity were about the same for both groups. The price/earnings ratio of the Decliners was 19.5 ± 13.2; for the Nondecliners it was 16.0 ± 13.1. Sentimentally, one might judge that the higher P/E ratio of the Decliners would make them more vulnerable in a decline. The difference between the two groups in P/E ratios, on the other hand, is just not significant (p > 0.3).

by Lewis Carl Mokrasch, Ph.D.