Oclaro (Oclaro) Predictability Rank

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What is Oclaro 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.

Oclaro 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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Oclaro (Oclaro) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Technology » Semiconductors » Oclaro Inc (NAS:OCLR) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

Website

http://www.oclaro.com

Oclaro Incorporated is a supplier of core optical network technology to telecommunication and data communication equipment companies worldwide. The company's optical technology is integrated into the switching, routing, and transport systems of communication equipment manufacturers. Ultimately, Oclaro's technology is used by these equipment manufacturers to build, upgrade, and operate optical networks. A network of direct sales force, customer service, marketing communications, and product line specific marketing employees help bring Oclaro's products to a range of international markets.

Executives

Marissa T Peterson	director	SUN MICROSYSTEMS, INC., 7777 GATEWAY BLVD, BLDG 11, MSUNWK11-260, NEWARK CA 94560
William Lloyd Smith	director	46429 LANDING PARKWAY, FREMONT CA 94538
Ian Small	director	400 N MCCARTHY BLVD, MILPITAS CA 95035
Greg Dougherty	officer: Chief Executive Officer	40919 ENCYCLOPEDIA CIRCLE, FREMONT CA 94538
Michael H Fernicola	officer: Chief Accounting Officer	C/O INFINERA CORPORATION, 140 CASPIAN COURT, SUNNYVALE CA 94089
David Teichmann	officer: EVP, GC, & Corp. Sec.	C/O INFINERA CORPORATION, 140 CASPIAN COURT, SUNNYVALE CA 94089
Craig Cocchi	officer: Chief Operating Officer	400 NORTH MCCARTHY BLVD, MILPITAS CA 95035
Hitachi Ltd	10 percent owner	6-6, MARUNOUCHI 1-CHOME, CHIYODA-KU, TOKYO JAPAN M0 100-8280
Jerry Turin	other: Former CFO	2584 JUNCTION AVENUE, SAN JOSE CA 95134
Alain A Couder	director, officer: Chairman, CEO	395 PAGE MILL RD, MS A3 18, PALO ALTO CA 94306
Harry L Bosco	director	C/O ARRIS GROUP INC, 11450 TECHNOLOGY CIRCLE, DULUTH GA 30097
Bernard J Couillaud	director
Giovanni Barbarossa	director	C/O COHERENT CORP., 375 SAXONBURG BLVD, SAXONBURG PA 16056
W Arthur Porter	director	7706 FONDREN ROAD, HOUSTON TX 77074