It might surprise readers to know that we find fundamental analysis very useful. Leading up to the fundamental analysis is the technical analysis that is necessary to guide our overall perspective of a given stock. In the case of J.M. Smucker (SJM), the stock appeared on our watch list in June 2017 as the price reached a level which led us to pay a little more attention. One fundamental that we like to track is the Altimeter which is best analyzed using a chart.
The Altimeter was first described by Edson Gould in Barron's on February 21, 1968. Gould asserted that the relationship between the price and the dividends paid on that stock, or index, tell investors of under or overvaluation. It is important to make the distinction between Gould’s Altimeter analysis and his Speed Resistance Line [SRL] analysis. Altimeters are based on the dividend payment relative to the stock price while the SRL is based strictly on the price movement.
In the case of J.M. Smucker, the Altimeter appears clear with little need for interpretation.
Posted in Altimeter, SJM
Below is the Altimeter for Walgreens Boots Alliance (WBA) with fair value (FV) overvalued and undervalued targets.
In our June 12, 2016 posting titled “Ritchie Brother: Inflection Point?” we said the following:
“…it appears that [Ritchie Brothers] RBA is at a threshold that has not been exceeded since early 2011”
“…the stock could rise to $48.00.”
the stock needs “…some kind of reprieve from the most recent parabolic move in the price”
Since June 2016, RBA has managed to trace out the following price action (in red):
As the last bullet point indicated and the price chart has reflected, the parabolic move was resolved with a decline to the recent low of $27.27. Unfortunately, we now need another parabolic move from $27.27 to the recent jump above $35 to be resolved in some way or another.
Another item that was pointed out was the possibility that RBA could exceed a level in Edson Gould’s Altimeter, a level that had not been exceeded since 2011. The recent price action since June 2016 has allowed this to occur as well.
We’re still thinking that the rise to $48 is possible. The recent news of the acquisition by RBA of IronPlanet makes it more possible to hit our target. However, the recent price activity of going from $27 to $35 overnight based on an acquisition simply means that achieving the $48 target will take more time than we had anticipated.
On January 8, 2016, we posted the following chart:
That red line that says 150 was our projected downside target based on the historical average from as far back as 2004. The update to this chart is below (Altimeter levels adjusted for dividends):
Apple is on the cusp of hitting that downside target. What happens if the stock breaks through on the downside, then you’d want to consider the investment merit of the stock based on conservative fundamental data. Keep in mind that the current P/E ratio of 10 should jump before the stock marches higher.
Do you remember that article we posted on September 23, 2012, about how adding Apple (AAPL) to the Dow Industrials would be “not so great”? Yeah, well, since being included into the index on March 19, 2015, Apple has declined –28% and the company that it replaced, AT&T (T), has increased +19%. True to form, the inclusion of Apple into the Dow Jones Industrial Average coincides with decline in the stock price. The adjustment period should be coming to an end. Let’s see how this plays out.
On February 5, 2016, we executed the following transaction(s):