The AAII A+ Stock Grades system is a research and evaluation tool that seeks to grade companies within five investment key factors: value, growth, momentum, earnings estimate revisions and quality. The grades measure key metrics within each factor and determine a relative score that seeks to separate the strong versus the weak candidates.
These grades are part of AAII’s A+ Investor online investment discovery, analysis and tracking service, which is also part of the AAII Platinum bundle.
The grades were designed to be an educational and insightful research tool for the individual investor. Our goal was not to create a black box ranking system. Instead, we focused on identifying the metrics that investors can use to gauge a company’s relative standing within critical investment factors such as value or momentum.
In constructing the grades, we drew upon research not only from academic resources but from market participants as well, seeking to isolate those factors that have shown a strong relationship with future performance. Since rolling out the grades system in early 2020, we have continued to research improvements to the underlying components and their use. For example, we refined the A+ Value Grade and the A+ Quality Grade, making them more robust by including additional elements. A backtest of the revised grades for the period from 1998 through 2019 indicated improved correlated future returns from A (best 20%) through F (worst 20%). In other words, stocks with lower grades typically did worse than stocks with higher grades. The improvements also broadened the range of stocks eligible for a grade.
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