Aetna (AET) Predictability Rank

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What is Aetna Predictability Rank?

Not Rated

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Aetna Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Aetna (AET) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Healthcare » Healthcare Plans » Aetna Inc (NYSE:AET) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

Website

http://www.aetna.com

Aetna is one of the largest managed-care organizations in the U.S., with over 22 million medical members. This large member count helps the firm diversify its operating risk and has formed the basis for material competitive advantages. The firm provides health insurance services to its members through products that encompass every major insurance market--individual, group, and government sponsored. Aetna and CVS recently announced their intention to merge operations, and if approved, it would form one of the most powerful players within the healthcare space.

Executives

Fernando Aguirre	director	CHIQUITA BRANDS INTERNATIONAL, 250 EAST FIFTH STREET, CINCINNATI OH 45202
Harold L Paz	officer: EVP & Chief Medical Officer	AETNA INC., 151 FARMINGTON AVENUE, HARTFORD CT 06156
Molly Joel Coye	director	AETNA INC, 151 FARMINGTON AVENUE, HARTFORD CT 06156
Jeffrey E Garten	director	AETNA INC., 151 FARMINGTON AVENUE, HARTFORD CT 06156
Frank M Clark	director	AETNA INC., 151 FARMINGTON AVENUE, HARTFORD CT 06156
Shawn M Guertin	officer: Exec. Vice President, CFO	TRINET GROUP, INC., ONE PARK PLACE, SUITE 600, DUBLIN CA 94568
Mark T Bertolini	director, officer: Chairman and CEO	AETNA INC., 151 FARMINGTON AVENUE, HARTFORD CT 06156
Karen S Lynch	officer: President	151 FARMINGTON AVENUE, RW61, HARTFORD CT 06156
Roger N Farah	director	POLO RALPH LAUREN CORP, 650 MADISON AVE, NEW YORK NY 10022
Ellen M Hancock	director	126 LIMESTONE ROAD, RIDGEFIELD CT 06877
Edward J Ludwig	director	C/O BECTON DICKERSON & CO, 1 BECTON DR, FRANKLIN LAKES NJ 07417
Margaret M Mccarthy	officer: EVP, Operations & Technology	AETNA INC., 151 FARMINGTON AVENUE, HARTFORD CT 06156
Olympia J. Snowe	director	100 E. PRATT STREET, BALTIMORE MD 21202
Heather Brianne Dixon	officer: VP, Controller & CAO	AETNA INC., 151 FARMINGTON AVENUE, HARTFORD CT 06156
Sabatino Thomas J Jr	officer: EVP & General Counsel	C/O JAN STERN REED BAXTER INTERNATIONAL, ONE BAXTER PARKWAY DF2 2W, DEERFIELD IL 60015