Below is a chart of Accelya Solutions from 2001 to 2021 reflecting the year-over-year (YoY) percentage change. This assessment reviews the probability of performance in the coming year(s).
Posted in Accelya Solutions, YoY
There is much discussion about the stock market crash of 1929. By default, that discussion centers around the collapse of the Dow Jones Industrial Average (as the S&P 500 didn’t exist at the time) which declined -89% from the 1929 high of 381.17 to the 1932 low of 41.22.
Little discussed is the collapse of the Dow Jones Utility Average. At the peak of the Dow Jones Utility Average, also topping in 1929, the index declined -92.67%. While the decline in the Dow Jones Industrial Average lasted approximately 2 and a half years, the final low in the Dow Jones Utility Average did not materialize until 1942, approximately 11 and a half years later.
While on the road to recovery from the 1932 low, the Dow Jones Industrial Average managed to exceed the 1929 peak in late 1954 and never looked back.
Meanwhile, The Dow Jones Utility Average has had a different path. From the 1942 low, The Dow Jones Utility Average did not manage to attain the 1929 high until 1963. By 1965, the Dow Jones Utility Average achieved a peak and fell to a low of 57.93 in September 1974.
Worse still, the Dow Jones Utility Average did not break above the 1929 high for good until 1984, creating the most unparalleled “cup and handle” technical formation. You would think that the breakout from the 1929 high would be significant enough to not worry about revisiting such a level again. However, the Dow Jones Utility Average came within 20% of the 1929 peak on October 9, 2002.
The decline in the Dow Jones Utility Average is not unlike the decline in the Nikkei 225 Index which peaked in 1989 at 38,876.94 and bottomed in 2003 at 7,607.88 fourteen years later (or at 7,054.98 in 2009 at 20 years after the peak). There is another similarity in the Dow Jones Utility Average and the Nikkei 225 Index.
After the collapse of the Nikkei 225, it was realized that the complex crossholding relationship of publicly traded companies made it difficult to unwind intricated positions in stock of insolvent or illiquid companies. The complexity of the relationship is illustrated below.
Likewise, the Dow Jones Utility Average list of companies, after 1929, had similar cross holding relationships as seen in the illustration below.
Highlighted in red is Electric Bond & Share Company. Below is the Electric Bond & Share Company web of business relationships.
In the example below, the violent rise and subsequent collapse in the share price of all publicly traded utilities made it difficult to unwind positions to allow for sale of assets or loans based on secured assets related to the actual business.
Electric Bond & Share Company had a share price increase from $45 in 1926 to as high as $475 in 1929. Only to later fall as low as $1 in 1932. Surviving such a rapid rise and fall wasn’t something that could have happened without considerable intervention.
Behind most utility companies was General Electric (GE) with outright ownership or majority stakes in the businesses. Ultimately, “orderly” government reorganization of the industry is what allowed General Electric to survive while the unwinding process dragged on for decades in the utility industry.
When there is discussion of the ravages of the stock market crash of 1929, keep in mind this story of the Dow Jones Utility Average. The decline and recovery is worth your time and consideration.
Posted in Dow Jones Utility Average, GE, General Electric, utilities
Below are the downside targets for the Nasdaq Composite. Continue reading
On September 6, 2020 in an article titled “The Nasdaq Will Surprise Everyone”, we said the following:
“When compared to the Dow Jones Industrial Average at the same price levels from 2009 to 2012, the Nasdaq Composite needs to correct but there is more room to run.”
Since that time, the Nasdaq Composite declined -11.80% from the September 2, 2020 high.
So far, the Nasdaq Composite has not exceeded the September 2, 2020 year-over-year runup. If you thought that the Nasdaq Composite run has been exceptional since the March 23, 2020 low then the chart below should put those thoughts to rest.
Posted in Nasdaq Composite, review, YoY
Below is the charting of the New York Times references to “Buy Stocks” from 1879-2020:
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Below are the valuation targets for Reckitt Benckiser Group (RB.L) for the next 10 years. Continue reading
Posted in 10-year Targets, Altimeter, RB.L
There is a lot of chatter around the Short Interest Ratio and we wanted to share some insight on this topic.
The excerpt below came from a great book by Harry D. Shultz - Bear Market Investing Strategies.
If we apply this logic to GameStop (GME), it was clearly a buy (in perfect hindsight) because the short percentage was 226% in in mid-January.
This is worth noting in the next short squeeze scenario.
Below is the annual silver/Dow Jones Industrial Average ratio from 1900 to 2021.
Short Squeeze Precedent
If silver were to experience a short squeeze on the scale of the Hunt brothers in the 1980’s, then the price of silver could rise to approximately $642 based on the Silver/Dow ratio above. This assumes the accepted clearing price of $20 for silver. However, if the price were to replicate the listed price of $50, then silver could theoretically achieve a price of $1,554.
A distinction about using the Dow Jones Industrial Average vs. the S&P 500 is that the S&P 500 didn’t exist before 1957. Therefore, all data before 1957 referring to the S&P 500 isn’t what investors and speculators used to make their decisions about the market.
A distinction about using silver instead of gold. Prior to 1971, gold did not freely float. This means that any ratio or price used before 1971 doesn’t reflect how the market perceived the price of gold. Meanwhile, silver has freely floated since 1873. This means that market sentiment was fully reflected in the price action of the metal.
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The rise, fall, and rise of GameStop (GME) is difficult to ignore. We find it extremely entertaining but also educational. As a result of this, we started looking at reversion to the mean which has produced some amazing charts.
Before we jump to GameStop $GME, we want to show you the same model applied to Bitcoin (BTC-USD). We have plotted out the chart of Bitcoin with the 200 simple moving average (SMA), and a 1x standard deviation band. The spiked in Bitcoin only managed to reach +300% above 200 SMA. This was the rise of Bitcoin to 20,000.
With this context, let's look at GameStop. As of the January 28, 2021 close, the stock was +2,670% above its 200 SMA.
While we are not experts in options trading, the pricing for these derivative is absolutely puzzling. On the day that GameStop is up +70%, the March 19, 2021 $10 Put rose +46%. This is an option to sell GameStop at $10, -97% from today's price, within 49 days. There were more than 4,000 contracts traded before 10am today.
This is truly remarkable and we are observing this on the sideline.
There is a lot of discussion regarding the possibility that the stock market is in a bubble. We have been steadfast in saying that the market is behaving normal.
In two prior articles, we have outlined the long term cycles averaging 16-17 years. The first article “Dow 130,000” dated January 3, 2018, quotes Warren Buffett’s 1999 comment stating:
“I think it's very hard to come up with a persuasive case that equities will over the next 17 years perform anything like--anything like--they've performed in the past 17.”
The second article titled “The Nasdaq Will Surprise Everyone” dated September 6, 2020, we make the following observation:
“Looking at the Nasdaq Composite from 2000 to 2016, we see a period of 16 years which the index did not exceed the prior peak.”
The points made by Buffett in 1999 and in our 2020 article is not based on hopes, in fact, these claims are derived from the history of market data.
The data from 1802 to 1999, as cited in Richard Russell’s Dow Theory Letters dated January 31, 2001, makes it clear that markets are not acting especially unusual.
In addition to markets acting as they should, so too are the critics of the market’s rise. They are claiming that we are in a bubble that will result in a Great Depression. These critics are also claiming that the market rise is fueled by the Federal Reserve and other central banks.
Unfortunately, this claim of central bank intervention has little merit when viewed from the table of data above, in the period from 1836-1914, when there was no central bank in the United States. Our own work titled “Is the Fed Responsible for the Stock Market Rise Since 2009?” dated February 17, 2014 on the period from 1836-1914 highlights how much central banks had little to no impact on the direction of the stock market.
Recently there has been concern about the over-extended nature of tech stocks, since they have increases substantially in spite of the pandemic. To our mind, it is especially tech stocks that should benefit during the pandemic, since they now are in the best position to sell their software without the need for an actual brick-and-mortar outlet.
The increase in tech stocks has pushed the Nasdaq well above the year 2000 peak. However, as we’ve indicated in our September 6, 2020 article, a rangebound market like the Nasdaq from 2000-2016 should be expected to increase exceptionally.
One way to look at the outcome of rangebound market is to compare one of the top stocks in 2000 to a top stock in the similar stage in the previous cycle peak (1966). Below we have compared the price of IBM from 1967 to the S&P 500 to the performance of Microsoft from 2000 to 2021.
I967-1987: IBM v. S&P 500
Although we could not get the price data from the 1966 peak, the truncated view still represents the 21-year performance needed. Why did we choose IBM to compare to the S&P 500? Because the stock is noted as a “Go-Go” in the 1966-1973 period. This mean that IBM would get unwarranted investor attention in spite of being fundamentally overvalued. Worth pointing out is the fact that at the end of the 21-year (1966-1987) period was met with the stock market crash of 1987.
2000-2021: MSFT v. S&P 500
Microsoft (MSFT) has managed to replicate the “action” of the IBM example against the S&P 500 from 1967-1987. Microsoft didn’t achieve a breakeven in price until 2016 and did not accomplish parity with the S&P 500 until 2018. This is a significant period to go without exceeding the market, suggesting that a level of exceptional outperformance is expected. To top off the 21-year period, the crash in the market in 2020 matches the 1987 crash experienced by IBM after 20 to 21 years after peaking.
Thoughts
Eerily, the market returns for both periods under review are quite similar for both the stocks and the index. A good market analyst would say, “if you compare total return then the returns aren’t the same.” This is accurate. However, as with nominal rates, market participants respond to what they can readily see and not the factual changes seen relating to real rates and total returns.
When viewed from this perspective, it should be clear that what we are currently watching in the market is very much a repeat market cycles and does NOT YET reflect a bubble market.
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On September 13, 2018, we provided downside targets for Tilray when it was trading at $118. The downside targets, based on the work of Edson Gould, were:
Because of the speculative activity in Tilray, we made a point of building downside targets for the stock if the price doubled to $236. At such a price, the downside targets were:
The actual intraday high for Tilray was $300 on September 19, 2018. This was a far cry above the initial trading price of $118 that the downside targets were constructed.
As seen in the chart below, the actual low has been $2.43 and Tilray currently languishes at a price of $16.80.
On January 19, 2021, we projected price targets for GameStop (GME) when the stock was quoted at $39.91. At the time, the downside targets were:
Since that article, GameStop has increased as high as $159.18.
Given what we’ve seen with Gould’s downside targets in the case of Tilray and other stocks, we still believe that the conservative downside target of $21.26 will be achieved.
Posted in Edson Gould, GME, Speed Resistance Lines, SRL, TLRY
This market continue to press forward and pushing the upper limit. It is fascinating to review the last year list to see what strategy did well and which one did not. The table below highlights the returns based on the top 5 companies under various fundamental metrics.
| January 24, 2020 | ||
| Strategy | High | Low |
| Yield | -18.7% | 6.9% |
| Payout Ratio | -11.2% | 14.4% |
| P/E | -2.2% | 9.5% |
| P/B | 4.6% | -5.6% |
| S&P 500 | 16.6% | |
| Dow Jones Ind | 0.2% | |
| Top 5 companies except for Index |
||
As expected, the S&P 500 did well rising 16.6% which one could argue is above the average long term rate of equity at 10%. Keeping pace with the market was low payout ratio which gained an average of 14.4%. The best return came from Evercore (EVR), a financial services company, whose stock rose 53.5% despite a drop of 53% at the bottom in March. Another company that stock rose 26.1% was Expeditors International (EXPD), a logistic company.
| Date | Symbol | Payout Ratio | % Change |
| 1/24/2020 | COLM | 20.04% | -1.17% |
| ANAT | 26.58% | -15.56% | |
| NUE | 27.47% | 8.84% | |
| EXPD | 27.62% | 26.14% | |
| EVR | 28.50% | 53.50% | |
| Grand Total | 26.04% | 14.35% |
On the opposite spectrum, high yield stocks dropped 18.7%. Largest decline from this group was H&R Block (HRB) which fell 30.3% in one year. At the time of the list publication, their dividend yield was 4.3%. The stock fell as much as 50% at March 2020 low but fail gain ground. Revenue fell roughly 15% from prior year but expense rose 3%. Free cash flow went from 511,048 in 2019 to 27,276 in 2020 (-95%).
| Date | Symbol | Yield | % Change |
| 1/24/2020 | CNP | 4.35% | -19.0% |
| EPD | 6.51% | -21.2% | |
| HRB | 4.34% | -30.3% | |
| IBM | 4.61% | -15.6% | |
| UVV | 5.78% | -7.4% | |
| Grand Total | 5.12% | -18.7% |
U.S. Dividend Watch List: January 22, 2021
With the market rising week after week, there are few companies trading near their yearly low. Because of that, we’ve broaden the range from 10% of the low to 20%. Below is the first watch list for this year. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
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Below are the price targets for NTPC Limited over the next 10 years. Continue reading
Posted in 10-year Targets, Altimeter, NTPC
Below are the valuation targets for Kimberly-Clark (KMB) for the next 10 years. Continue reading
Below are the valuation targets for Inter Pipeline Ltd. (IPL.TO) for the next 10 years. Continue reading
Posted in 10-year Targets, Altimeter, IPL.TO