Nasdaq 100 Watch List: August 26, 2014

Below is our watch list with the estimated price targets for the remainder of the year.

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Nasdaq 100 Review

Below is the one year performance of our August 23, 2013 Nasdaq 100 Watch List stocks (8/23/2013 to 8/26/2014):



Symbol Name 2013 2014 % change
SHLD Sears Holdings Corp 39.6 34.67 -12.45%
EQIX Equinix, Inc. 170.01 217.25 27.79%
TEVA Teva Pharmaceutical 38.3 52.22 36.34%
CHRW Robinson Worldwide 57.2 68.45 19.67%
EXPE Expedia Inc. 48.84 87.43 79.01%
NUAN Nuance Comm. 19.31 17.17 -11.08%
MXIM Maxim Integrated 27.71 30.91 11.55%
BRCM Broadcom Corp. 25.24 38.81 53.76%
ISRG Intuitive Surgical 390.09 478.68 22.71%
NWSA News Corporation 15.75 17.62 11.87%
Avg. % change 23.92%
NDX Nasdaq 100 Index 30.26%

The watch list of stocks gained +23% versus a gain of +30% in the Nasdaq 100 Index.  The best performing stock, with gains of +79%, was Expedia which was a strong interest stock featured on our July 26, 2013 watch list.  At the time, we said the following:

Travel website operator Expedia (EXPE) has suddenly dropped in on our watch list with a –27.38% decline in the stock price on Friday July 26, 2013.  We’re not sure that a –28% decline in quarterly earnings requires a –27% decline in the stock price.  This type of activity suggests that since June 2012, investors had not sufficiently assessed the prospects of the company before acquiring the stock.  Extreme swings in the price indicate that there is more downside risk.

Applying Edson Gould’s Speed Resistance Lines gives us a conservative downside target of $42.56 and an extreme downside target of $22.70.

Our expectation is that there is a good chance that Expedia will decline to the $34 level.  Once falling below $34, Expedia should be reviewed on a fundamental basis as a going concern.  There may be significant opportunity for this stock as the performance has been in line with industry competitors.

As is often the case, we were too conservative in believing that EXPE would achieve the rising $34.00 level.  Instead, EXPE fell exactly to the rising $42.56 level and moved higher from there (updated chart below).

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Another strong interest stock in the same July 26, 2013 posting, Equinix (EQIX) also fell only as low as the conservative downside target.  From the peak price of $229.02, EQIX spent only four trading days below $158.37.  It has been nothing but an uphill climb since.

The worst performing stock was Sears Holdings (SHLD).  Sears has essentially traded with descending peaks since 2007 with price support at around $30.  A break below $30 could result in significant loss for any remaining shareholders.  Private equity firms must be circling Sears at the prospect of a decline below the long-term support.

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The strong interest stock from the August 23, 2013 watch list was Maxim Integrated Products (MXIM). At the time we said of MXIM:

“The stock of most interest to us is Maxim Integrated Products (MXIM).  Maxim has had a great run since our March 20, 2010 highlight of the chip sector as potential investment candidates (found here).  In the chart below, since the 2008 trough, Maxim has maintained a consistent ability to rebound from the conservative downside target of $26.97.  However, if the stock cannot hold the line at $26.91, then we expect that the stock will fall to the $19.03 level.  The extreme downside target is $11.10, however, we don’t expected this to be achieved.  Potential investments at the current level along with stepped up amounts of capital at $19.03 and $15.87 is recommended.”

Since August 23, 2013, Maxim increased as much as +29.05% before falling to a 1-year gain of “only” +11%.  If we include the dividend of 3.80%, the total return would be +15% for the last year.  Below is the updated SRL for MXIM with new conservative and extreme downside targets.

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Although Maxim has fallen considerably since the June 2014 peak, we’re only willing to re-consider the stock after falling at or below the rising $27.79 level.

Investment Consideration

To put all of the gains (and losses) into perspective, we like to compare any profits with the historical market return.  Below are the annualized compounded annual growth rates (CAGR) for the last 50, 40, 30, 20 and 10 years (adjusted for inflation) [source].

years CAGR
50 5.90%
40 5.80%
30 8.42%
20 6.71%
10 6.67%

If an investor can achieve two times (2x) the 30-year CAGR in a single year, it is worth considering alternative investment opportunities while selling the principal and allowing the profits to compound in those stocks that pay a dividend.

U.S. Dividend Watch List: August 22, 2014

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from July 26, 2013 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Symbol Name 2013 Price 2014 Price % change
IBM IBM 185.42 190.41 2.7%
NWN Northwest Natural Gas 42.26 44.71 5.8%
XOM Exxon Mobil Corp. 87.52 98.50 12.5%
PM Philip Morris International 85.37 84.34 -1.2%
MAC Macerich 56.72 64.89 14.4%
      Average 6.8%
         
DJI Dow Jones Industrial 15,010.51 17,001.22 13.3%
SPX S&P 500 1,663.501,988.4019.5%

We didn’t elaborate much about the top five companies on the list but we did indicate our position in Coca-Cola (KO). Coca-Cola performance was sub par with a gain of +6.75%. However, when we include dividend into the picture, the total gain is+ 9%.

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U.S. Dividend Watch List: July 25,2014

The Dow is approaching its all-time high while the S&P 500 closed above its all-time high this week. We highlighted our macro view in the Dow Theory update on August 14, 2014. As a result of the market upward surge, our watch list dwindled down to sub 100 for the first time in several weeks.

Because the market multiple is at 19, many companies are likely to be closer to fair value and over valued. We highly encourage extra caution and due diligence when filtering through the list. Continue reading

Gold Stock Indicator: August 22, 2014

Since our last posting, Gold (GLD) and gold stocks (XAU Index) continue to trade in a range as seen below.

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Apple meets NLO Upside Target

On August 19, 2014, Apple (AAPL) stock price rose as high as $100.66.  When Apple was trading at $61.61 on March 9, 2013, we said the following with the accompanying chart:

“Apple Inc. (AAPL) is at the top of our watch list as it is within 5% of the one year low.  In our April 14, 2012 test of the quality of Edson Gould’s Speed Resistance lines, Apple fell from $636 [adjusted price of $90.85] to our projected level of $424.15 [adjusted price of $60.59] (found here).  Now that the stock has achieved our downside target, we expected that a reaction to the upside is likely.”

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On July 17, 2013, when Apple was trading at $61.47, we re-affirmed our view of the upside potential for Apple with the following commentary:

“Currently, Apple is demonstrating a basing pattern that if successful, could result in a breakout to the upside.  At the current levels, we wouldn’t be opposed to buying some shares of Apple with the expectation that the stock could decline an additional –25% to –35%.”

The work of Edson Gould has proven to be astounding when considered in its context.  On April 14, 2012, we posted an article titled “Considering the Downside Prospects for Apple”.  At that time, we were revising the previous estimates of downside risk done on February 5, 2012 (third party source available here).

What was mentioned on February 5, 2012 is critical to understanding how Edson Gould’s downside projections work.  At the time, we said:

“The very first thing that we look for, to determine speed resistance lines, is the most recent peak in the price. Because AAPL is continually making new highs, we only need to use the latest price of $455.68 [post split price of $65.09] as our starting point….As the price of Apple increases, so too does the SRL lines based on the work of Edson Gould.”

This means that as long as the price of the stock increases to a new high the speed resistance lines are expected to increase as well.  Only when the stock starts on a declining trend can we expect that the stock price might go to the conservative and extreme downside targets.

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On April 14, 2012, when Apple was trading at $90.89 (pre-split price of $636.23), we said the following:

“…we believe that, based on the current speed resistance lines, no one would expect Apple to decline to our conservative downside target of $424 (post split price of $60.57)…”

The strength of Gould’s downside risk estimates is that we didn’t even have the peak price of $100.71 set on September 18, 2012 but we were still able to see the conservative downside target of $60.57 achieved.  Had we used the peak price, we would have achieved the $67.14 conservative downside target much earlier than the $60.57 level.