Category Archives: Edson Gould

Quick Take: Consolidated Edison

“The valuation problem is far from academic: In recent years, some huge-scale frauds and near-frauds have been facilitated by derivatives trades. In the energy and electric utility sectors, for example, companies used derivatives and trading activities to report great ‘earnings’ – until the roof fell in when they actually tried to convert the derivatives-related receivables on their balance sheets into cash. ‘Mark-to-market’ then turned out to be truly ‘mark-to-myth.’”

Buffett, Warren. Berkshire Hathaway. 2002 Letter to Shareholders. February 21, 2003.

Berkshire Hathaway: 10-year Price Projections

In our May 6, 2012 posting on Berkshire Hathaway (BRK-A) titled “Should Berkshire Hathaway Be Trading at 1995 Prices?”, we gave price projections based on Edson Gould’s Altimeter using very conservative estimates if BRK-A paid a dividend.  As we’ve managed to achieve the middle of the three upside targets set down in our 2012 article, we’re going to list the price that we think BRK-A would be considered undervalued for each of the next 10 years.

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.

Berkshire Hathaway Meets NLO Target

On May 6, 2012, we proposed that Berkshire Hathaway (BRK-A) was trading at a price that was well below its true value.  At the time, BRK-A was trading at $164,990 per share.  However, we proposed that Berkshire Hathaway should have been selling at much higher prices with upside targets of $175k, $197k and $219k in a 2-3 year timeframe.  As BRK-A sits within 1% of our mid-range target of $197,190 after two years, we believe it is time to reassess where Berkshire Hathaway sits within the context of Edson Gould’s Altimeter.

Nu Skin Meets Our Downside Target

On January 16, 2014 at 8:40am EST, we said the following of Nu Skin Enterprises (NUS):

“If the stock closes below $79.28 then the price should vacillate at or below the rising conservative SRL in the medium-term.  If the stock manages to close above the $79.28 level then the upside target is $118.92.  Additionally, the extreme downside target of $46.83 is just on the horizon.  In theory, this stock should achieve the extreme downside level before hardened speculators will jump in.”

On August 6, 2014, NUS declined as low as $43.50 and closed at $46.52.  An updated Speed Resistance Line is included below:

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NUS has met our January 2014 call for the extreme downside target of $46.83.  It is at this point that NUS becomes interesting to hardened speculators.  Based on Gould’s SRL, NUS has an upside targets of $82.73 and $118.92.