On August 6, 2012, we purchased Carbo Ceramics with the following rationale:
“Carbo Ceramics (CRR) has been mentioned by us on several occasions. CRR first appeared on our February 10, 2012 U.S. Dividend Watch List (found here) and was trading at $85.94. An Altimeter was run on CRR which indicated that the stock would be undervalued at $62.40 (found here). However, as CRR has experienced a dividend increase of 12.5% since our May 28, 2012 Altimeter, the stock is now considered undervalued at $70. While we do expect approximately 20% downside risk from the current price, we are comfortable with adding to our position when such a decline takes place.”
As it appeared that Carbo was undervalued between $62.40 and $70, we used 5% of our portfolio to purchase the stock. After August 6, 2012, Carbo Ceramics fell as low as $63.03 and increased as much as $156.
Below are the updated numbers for Carbo Ceramics after the decline from the most recent peak of $156. We will cover both aspects of CRR based on Gould’s Altimeter and Speed Resistance Lines. First, the qualitative review based on the Altimeter.
In the last week gold managed to eek out a gain while gold stocks declined nearly –3%.
NOTE: In our Dow Theory posting of May 18, 2014, we revealed an issue with Dow Theory that has gone unaddressed since S.A. Nelson’s book, The ABC of Stock Speculation, coined the term “Dow’s Theory.” We believe the acknowledgment of this issue adds clarity to the writings of Charles H. Dow and may produce new insights that have not previously been explored.
On December 3, 2010, we ran the numbers for Netflix,based on the work of Edson Gould’s Speed Resistance Lines, to determine what the downside risk might be for the stock. The projected downside targets are illustrated below:
Not long afterwards, Netflix stock price soared from $185.45 to $300. However, the goal of our site is to determine downside risk and the rise in the stock price of was of little interest. Our view is that if we missed an investment opportunity then we will consider investing only if the stock declines to any of the anticipated downside targets.
Naturally, there was considerable opportunity that we missed on the way from $185 to $300. However, our rule is to seek values and from our experience all quality companies become undervalued at some point. Finally and for numerous reasons, Netflix declined from the peak of $300 to as low as $53.80. Naturally, we were able to pick up shares of Netflix at $62, a price we felt was reasonable at the time. Our critical review of the downside targets allows us to accept our purchases for the long-term in case we happen to be wrong about the short-term upside prospects.
October 15, 2014: Netflix Downside Targets
On October 29, 2013, we said the following:
“…if we are in a commodity bull market, as we’ve made reference to in our January 1, 2009 article, then there is a good chance that a bounce at the long-term technical support line would mark the end of the cyclical bear move in commodities.”
On October 15, 2014, the Bloomberg Commodity Index (sold to Bloomberg in July 2013 from S&P Dow Jones) declined as low as 116.96. As seen in the chart below, this sits at the exact long-term support level.