On this date in 1983, Richard Russell published Issue 859 of the Dow Theory Letter [526]. At the time, the Dow Jones Industrial Average was at the 1,191.47 level and the Transportation Average was at 531.53.
The following Richard Russell Review details the topics of the Elliott Wave and 50% Principles as outlined by A.J. Frost, Robert Prechter and Charles H. Dow.
Today it was announced that Hasbro (HAS) was up “big” on better than expected earnings due to licensing agreements with Disney based on the latest Star Wars release and Frozen. The combined impact of the two movies has had what appears to be an exaggerated impact on year-over-year earnings. In the linked article above, we include the closing paragraph:
“Following the release of its earnings results, shares of Hasbro soared in Monday’s pre-market trading session; the stock continued to gain after the opening bell, and is currently up 4.4%. Year-over-year, the toymaker’s shares are up 16%.”
Our question, is the impact of a licensing agreement the real reason Hasbro’s stock price is higher? To examine this question, we took a look at the price performance of Hasbro’s main rival, Mattel (MAT). We’ll start with the stock price and compare it to the “year-over-year” change compared to HAS.
According to Yahoo!Finance, in the last year, Hasbro has declined as much as –11% and ultimately increased +17%. Meanwhile, Mattel has declined as much as –27% while increasing as much as +24%. The net change from the respective lows is in stark as Mattel has increased +70% while Hasbro has increased +33%, all within the last year.
Because the focal point is often the translation of earnings to the change in the stock price, you would think that the dramatic impact accrued due to the relationship between Hasbro and Disney would be more meaningful than a mere one year gain of +17% or a low-to-high change of +33%. Alternatively, what is going on at Mattel to account for the comparatively large change in the stock’s price?
From what we can tell, Hasbro’s gain in reported earnings has only a short-term impact on the stock price and for the most part the “surprises” are baked in with only industry average gains/losses to be expected going forward. As for Mattel, we cannot explain the comparatively dramatic decline and rise that has occurred in the last year. However, one thing is certain, the narrative offered for Hasbro’s gains doesn’t account for the barely noticed changes occurring at Mattel.
Final Thought: Reconsider the analysts claims in the face of clear evidence to the contrary.
Below is the Watch List and Analyst Estimates for insurance stocks.
On April 30, 2015, we presented downside targets for LinkedIn Corp. (LNKD) when the stock was trading at $199. In our concluding commentary we said the following:
“Those interested in LNKD should consider the stock in stages at or below the ascending $139 level with an acceptance of a decline to the ascending $92.06 level.”
Between the closing price of $192 on February 4, 2016 and the opening of February 5, 2016, LinkedIn Corp. had declined nearly –30% in after-hours trading. The opening price on February 5th was at $125. Below is an updated price chart applying Edson Gould’s Speed Resistance Lines.
As indicated nearly one year ago, at nearly double the price, the extreme downside target of $92.06 was a distinct possibility. Additionally, anyone willing to take the risk at $139 or below has had favorable prices from which to choose. What should be noticed is the fact that LNKD managed to hit the extreme downside target and then bounce above it, for the time being.
There is incredible pressure for this company to be turned around or absorbed. It is with luck that the stock has managed to bounce at the level we outlined. However, further marginal failures by the company could result in a retest of the $59.07 price.
Posted in Edson Gould, LNKD, speed resistance line, SRL
Performance Review
On April 15, 2015, we generated the following list of stocks for consideration with their respective performance one year later:
| symbol | Name | 2015 | 2016 | % chg |
| RCI-B.TO | Rogers Communications Inc. | 42.1 | 50.05 | 18.88% |
| CU.TO | Canadian Utilities Ltd. | 39.9 | 35.85 | -10.15% |
| BEI-UN.TO | Boardwalk REIT | 59.72 | 52.5 | -12.09% |
| REF-UN.TO | Canadian REIT | 46.07 | 44.34 | -3.76% |
| SJR-B.TO | Shaw Communications, Inc. | 27.07 | 24.64 | -8.98% |
| ACO-X.TO | ATCO LTD., CL.I, NV | 46.33 | 38.68 | -16.51% |
| TU | TELUS Corporation | 34.78 | 31.81 | -8.54% |
| IGM.TO | IGM Financial Inc. | 46.17 | 37.49 | -18.80% |
| CTY.TO | Calian Technologies Ltd. | 18.5 | 19.01 | 2.76% |
| BNS.TO | The Bank of Nova Scotia | 65.43 | 61.85 | -5.47% |
| NA.TO | National Bank of Canada | 48.16 | 42.31 | -12.15% |
| CM.TO | CIBC (bank) | 95.84 | 96.27 | 0.45% |
| CGO.TO | COGECO Inc. | 54.13 | 54.15 | 0.04% |
| CUF-UN.TO | Cominar REIT | 19.33 | 17.1 | -11.54% |
| AX-UN.TO | Artis REIT | 14.85 | 12.79 | -13.87% |
| CJR-B.TO | Corus Entertainment Inc. | 17.07 | 11.73 | -31.28% |
| LB.TO | Laurentian Bank of Canada | 47.33 | 46.82 | -1.08% |
The performance of the entire list averaged –7.77% compared to the –12.93% decline in the Toronto Stock Exchange index. The first five stocks on the list averaged a loss of –3.22%.
The spread between what the analysts had predicted for earnings (and the implied change in the stock price for the year ahead) provides a better summary of performance. As we’ve indicated in the past, the stocks with the worst estimates typically should outperform the stocks with the best estimated price expectations. The chart below shows a ranking based on the total percentage spread between projected price change and the actual price change.
The narrower the spread the more accurate the analyst estimate. Three stocks were on target (CU.TO, BEI-UN.TO, REF-UN.TO) as they performed within a 5% range AND in the general direction that the analysts has anticipated (having declining expectations and declining price or rising expectations and a rising price). All other stocks were well out of the range of analyst expectations by falling or rising when the opposite was forecasted.
It should be noted that the order of the spread is almost the mirror opposite of the analyst expectations. This goes back to our point of identifying the stocks that have the worst expectations and best fundamentals for investment consideration as the analysts are typically too negative or too positive when a more balanced view is necessary.
Performance Review
In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from April 10, 2015 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 |
| FAST | Fastenal Company | 40.01 | 47.13 | 17.8% |
| LNN | Lindsay Corporation | 75.19 | 67.78 | -9.9% |
| MSM | MSC Industrial Direct Co Inc | 70.24 | 75.39 | 7.3% |
| DOV | Dover Corp. | 69.40 | 62.91 | -9.4% |
| SJI | South Jersey Industries | 26.91 | 27.67 | 2.8% |
| Average | 1.7% | |||
| DJI | Dow Jones Industrial | 18,057.65 | 17,576.96 | -2.7% |
| SPX | S&P 500 | 2,102.06 | 2,047.60 | -2.6% |
Watch List Review
The average gain from our top five companies was reasonable given the overall environment. A gain of +1.70% was superior to a loss of -2.60% for the general market. The gain and loss ranged from +17.80% to -9.90%. The best performer with gain of +17.8% was Fasternal (FAST). The exceptional gain can be attributed to two factors, earnings growth and multiple expansion. Net income rose by +7%, from $1.66 to $1.77 over the past year. Earning multiples rose to 26 from 24. As icing on the cake, the dividend was increased by +7%, from $0.28 to $0.30. One outstanding statistic which highlighted the strong economic mode is Return on Equity (ROE). Below is what we said about Fasternal one year ago:
"Fasternal (FAST) currently yield 2.8% with P/E of 24. The stock is trading just 1.4% above its yearly low. For the last twelve months the company earn $1.66 per share and the consensus expects the net income to rise to $2.07 in 2016. The one fundamental number that attracts us is the return on equity. If the company earning $2.07 next year on $6.00 of book value, that equate to 34.5% ROE."
The worst performer was Lindsay (LNN). We all know that the agricultural sector was dragged down by deflationary forces and it clearly shown in the stock price. One year ago, LNN was trading at $75 and Value Line Investment Survey placed a fair value estimate at $77. However, the latest Value Line report has a price of $68, slightly below fair value of $69. Our valuation model suggests an extreme downside of $45 but long-term investors should start paying attention to Lindsay at the current price. Below is a highlight of our commentary on Lindsay.
Lindsay (LNN) provides agricultural equipment. While income investor may not be excited over 1.4% dividend yield, payout ratio of 30% ensure that income is relatively safe. Profit is expected to fall in 2015 from the last 12 months by 24% but is expected to recover in 2016. Value Line projects that the company trades at 16x cash flow with estimated fair value at $77.
U.S Dividend Watch List: April 8, 2016
The market gave ground this week and fell -1.2%. However, the correction wasn't big enough to make a substantial change in the watch list. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
Tagged members
"To know values is to know the meaning of the market. And values, when applied to stocks, are determined in the end by the dividend yield."
-Charles H. Dow
Posted in Charles H. Dow, Quote of the Day
Since our March 2016 posting, the price of gold has decreased by –5.00% while the Philadelphia Gold and Silver Stock Index (XAU) has increased +4.45%.
The Dow Jones Industrial average had an outstanding gain in the month of March. The blue chip index rose +7%. Continue reading
On April 1, 2016, we executed the following transaction(s):
Prior Year Top Five Performance Review
In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from March 27, 2015 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 |
| PM | Philip Morris International | 76.79 | 97.57 | 27.1% |
| XOM | Exxon Mobil Corp. | 83.58 | 83.98 | 0.5% |
| CAT | Caterpillar | 79.67 | 75.29 | -5.5% |
| MSM | MSC Industrial Direct Co Inc | 71.21 | 74.57 | 4.7% |
| PX | Praxair | 120.16 | 111.74 | -7.0% |
| Average | 4.0% | |||
| DJI | Dow Jones Industrial | 17,712.66 | 17,515.73 | -1.1% |
| SPX | S&P 500 | 2,061.02 | 2,035.94 | -1.2% |
Watch List Review
The average gain for the top five companies was +4% which was better than the market. The best performer may be of a surprise to many, Philip Morris (PM) gained +27% in the year. Of the five companies, the largest decline of -7% came from Praxair (PX). We highlighted three companies and would like to bring to light what we said about Exxon Mobile (XOM). Below is an excerpt from that post.
As one look beyond the short term and see what the market has offered us, the investment opportunity looks even more compelling even in the mist of the bad news. Valueline placed a fair value at $75 for 2016 which is roughly 10% below the current level. Although Valueline estimated earning and cash flow per share to fall, dividend is projected to rise 5% and 4% from 2015 and 2016 respectively (head to Valueline for complimentary research report on Exxon). IQTrend estimated that the company is undervalued at 3.2% yield and current yield of 3.3% suggests that we are much closer to the bottom than the top. Don't expect the stock to pop in the short term and may have more downside to go. Multiple purchases is likely the best approach for long-term investor.
U.S Dividend Watch List: March 25, 2016
Below are 26 companies appearing on our dividend watch list for the week. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
Tagged members
Performance Review
Below is the performance of the watch list stocks from our March 27, 2015 posting:
The watch list averaged an equal weighted loss of –1.32% while the first five stocks averaged a gain of +3.15%. This compares to the gain for the Nasdaq 100 Index of +0.52% over the last year. The stocks of interest (STX, QCOM, SNDK, KLAC) had worse than average results with an equal weighted decline of –6.00%. Our quote at the time was:
“In the chip sector, the recent announcement by Intel that they are interested in buying Altera (ALTR) suggests that further consolidation of the industry is on the way.”
Since that March 2015 posting, all of the companies were involved in some kind of merger/acquisition activity. Sandisk was supposed to go to Western Digital, Seagate acquired Dot Hill, Lam Research acquired/merged with KLA-Tencor and rumors abounded about Intel actually buying Qualcomm. The mixed results of the stock performance over the last year should not be confused for the long-term reality of this sector. These stock will be acquired or rendered irrelevant in due time (as is the rule for all stock investments). However, the odds favor the production, storage/memory and plant assembly in the chip sector.
On this date in 1998, Richard Russell published Issue 1248 of the Dow Theory Letter. At the time, the Dow Jones Industrial Average was at the 8,872.79 level and the Transportation Average was at 3,517.52.
Russell opens his newsletter by pointing out the distinction between what the market “should be doing” versus what was actually happening. What was happening? The market was defying all long-term conventional norms. In Russell’s word’s, “The conclusion -- always -- is exhaustion.” Russell felt that the market’s rise was at a mania level and that investing in such a market was clearly a personal choice but that “values will out.”
Below is the Insurance Watch List which includes the analyst estimates of price change in the next 12 months.
On March 31, 2014, we summarized our thoughts on Family Dollar (FDO) in a Quick Take posting with the following:
“Falling below the $55.07 support line suggests that FDO could decline to $47 in the near term. Investors interested in FDO could break their investment into at least two purchases, the first being 60% of the intended amount now and the second purchase of 40% at either of the two indicated support levels at $44.95 or $34.83.”
Like moths to a flame, we were encouraged by Value Line Investment Survey’s assessment that “…would-be investors to look else-where.” As we saw it, the fundamentals and technicals supported the idea that Family Dollar was worth investing in (at least 60% of funds committed as part of a balanced portfolio).
Posted in acquired, DLTR, FDO, Performance Review, Quick Take