Category Archives: Altimeter

Gold Stocks to Consider Based on Our Indicator

Posted on April 8, 2012 by nlo-admin | Leave a comment

In light of our Gold Stock Indicator approaching the long term buy signal (found here), we have decided to go over the gold stocks that pay a dividend and are near their respective 52-week lows. In this review, we’re going to cover Agnico-Eagle Mines Ltd. (AEM) and Gold Fields Ltd. (GFI). When, and if, the Gold Stock Indicator actually reaches the long term buy indication it will be posted to our site. The stocks that we cover here are for you to do additional due diligence before taking any action.

Agnico-Eagle Mines Ltd. (AEM) closed at $32.37 on Thursday April 5, 2012. Agnico-Eagle is currently operating at an annual loss of -$3.36 according to Yahoo!Finance. Contributing factors to Agnico-Eagle’s decline in price over the last year has been problems with the operation of their mines.

As described in many of our previous articles, Edson Gould’s Altimeter is based on the stock’s price relative to the actual dividend paid. The Altimeter is a critical real-time assessment of value based on the company’s dividend. Below is the altimeter for Agnico-Eagle:

In our assessment of Agnico-Eagle, we have compared the current level of the Altimeter at 161.85 and compared it to other times when Agnico-Eagle has trade at the same relative level, or below, and traded up to 400 on the indicator. In the case of Agnico-Eagle there were two periods, before the bull market in gold stocks began, that the stock was selling at a low and was a great buy (based on the altimeter). In the period from November 2, 1990 to July 3, 1993, Agnico-Eagle rose +174% and in the period from August 25, 1998 to October 4, 1999 rose +157%.

Since the gold bull market began, the only other time that Agnico-Eagle was selling below 161.85 and subsequently traded up to the 400 level was the period from October 21, 2008 to October 6, 2010 for a gain of 103%, this far exceeded the gains of the SPDR Gold Shares (GLD) over the exact same period of time.

Next in our review is Gold Fields Ltd. (GFI). Gold Fields sports trailing earnings of $1.22 in the last twelve months and a dividend of $0.61 with a dividend yield of 4.70%. Yahoo!Finance indicates that Gold Fields operates “in South Africa, Peru, Ghana, and Australia.” Based on the majority of countries that Gold Fields operates, there is some political risk to this investment. However, Gold Fields has exhibited amazing consistency in the Altimeter below:

Presently, Gold Fields is trading at the Altimeter level of 42.38. The chart depicts the times when GFI was bought at the 42.38 level and sold whenever the Altimeter reached 100. The results are amazing and provide clear evidence on how gold stocks can outperform the price of gold when combining Edson Gould’s Altimeter with our Gold Stock Indicator.

Our approach to buying these stocks is to purchase in two stages, once at, or near, current levels and a second time only if the stocks fall -20% below the initial purchase price. As an example, if we have $10,000 that we’d like to invest then we buy $5,000 now and hold the remaining funds unless/until the stock declines by -20%. We’re basically hedging with cash if we’re wrong. If we’re right about our first investment (the stock price rises) then we can use the cash to buy another stock near a new low.

Before bothering with the first of many gold stocks that we’ll be covering based on our Gold Stock Indicator, please review the following questions and answers:

Is there downside risk to taking positions in gold stocks at this time? Yes, price declines can reach as much as -50% within the first two months of the purchase.
Are you comfortable with declines of -50% or more? If not, then don’t bother with these stocks at this time. If you’re wondering about the logic of recommending anything that might decline by as much as –50% then please read our view on the topic (found here).
Could these stocks have been held for the “long-term?” Ideally, yes, however, we believe that history is not on the side of gold stocks relative to the price of gold as we described in greater detail in our article titled “A Strategy is Needed For Lagging Gold Stocks”.

We believe that Edson Gould’s Altimeter, when revealing consistent relative values, yields highly favorable results. While we always seek to purchases at a relative low, we always set a target for selling at higher levels rather than “holding for the long term.” Our analysis could change if the stocks mentioned above dramatically increase or decrease their dividend.

Apple Inc.: Edson Gould’s Altimeter as if AAPL were a Dividend Achiever

Posted on March 19, 2012 by nlo-admin | Leave a comment

As Apple Inc. (AAPL) announces that it will be paying a dividend of $2.65 per quarter starting in July 2012, we wondered what Edson Gould’s Altimeter would look like if it were applied to AAPL after 1995, when AAPL eliminated their quarterly dividend. We want to see how Gould’s Altimeter would react to Apple Inc. if the dividend were increased every year from 1996 to the present with the assumption that the 2013 annual dividend would be $10.60 per share.

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 Edson 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 Apple Inc. (AAPL), there hasn’t been a dividend paid since 1995. To arrive at a dividend payment from 1996 to today, we calculated a gradual annual dividend increase as would be the case with any blue chip stock like a Dividend Achiever. Dividend Achievers are stocks that have increased their dividend every year for 10 consecutive years in a row.

We're running on the assumption that the July 2012 $2.65 quarterly dividend would be the latest increase in a long string of dividend increases since 1996. Below is the assumed dividend increases from 1996 to the present:

Year	Annual	Quarterly
1996	$0.52	$0.13
1997	$1.13	$0.28
1998	$1.76	$0.44
1999	$2.40	$0.60
2000	$3.00	$0.75
2001	$3.64	$0.91
2002	$4.42	$1.11
2003	$4.88	$1.22
2004	$5.52	$1.38
2005	$6.14	$1.54
2006	$6.76	$1.69
2007	$7.40	$1.85
2008	$8.02	$2.01
2009	$8.64	$2.16
2010	$9.28	$2.32
2011	$9.89	$2.47
2012	$10.48	$2.62
2013	$10.60	$2.65

Based on the proposed annual dividend increases, we can now view what Edson Gould’s Altimeter would look like for Apple Inc. (AAPL) stock. Below is the Altimeter from 1996 to the present.

The first thing that is noticed, in the chart above, is the fact that from 1996 to 2007, Apple traded in a range of between 50 and 17 on the Altimeter (Altimeter level; not stock price). Anytime AAPL was trading near 50 the stock was overvalued and when the stock traded around the 17 range the stock was considered undervalued.

However, the low of 2003 marked the beginning of a new relationship between Apple’s stock price and our hypothetical dividend that would have been received. Starting in 2006, AAPL’s stock would decline, at minimum, to the previous Altimeter peak. The decline from the 2006 peak stopped exactly at the 2005 peak. The decline from the 2007 peak initially flirted with the 2006 peak but ultimately succumbed to the forces in play and fell well below the 2006 peak.

Our take on this “pattern,” based on hypothetical dividend increases every year from 1996 to the present, is that the next support level for Apple’s stock price would be at the 2007 peak, at minimum. This suggests that APPL’s stock price could decline to $284.98. Such a decline would constitute a –52.59% drop from the closing price of $601.10 on March 19, 2012. Although the $284.98 level seems dismal, it is a far cry better than Edson Gould’s Speed Resistance Line [SRL] analysis which suggests that the extreme downside target is $201.66. This is an increase from the February 5, 2012 downside [SRL] analysis done on Apple (found here).

Investment Observation: Northern Trust (NTRS) at $47.26

Posted on September 1, 2010 by NLObserver Team | 1 comment

Today’s Investment Observation is Northern Trust (NTRS). Although Northern Trust has not increased the dividend in the last couple of years, the company has an exceptional dividend history given the turmoil that has transpired in the financial services industry for the last 3 years. According to Value Line Investment Survey, “Northern Trust is a leading provider of investment management, asset and fund administration, fiduciary and banking solutions for institutions and affluent individuals worldwide.”

Based on Value Line’s June 18, 2010 issue, Northern Trust (NTRS) has a fair value of $63. The stock has had an increase in the number of shares outstanding by 7% since 1999. However, the book value for NTRS has increased by slightly less than 3 times (286%) since 1999. Although Value Line has NTRS with a timeliness rating at the lowest end of the scale, NTRS is expected to increase in value to $70 by 2013, which is an annualized total return of 11%.

According to Dow Theory, Northern Trust (NTRS) has the following downside targets:

$44.48
$38.84
$33.20

At the current price, the worst-case scenario of NTRS falling to $33.20 is 27.17%. In our investment strategy, declines of 25% would initiate the second of 3 purchases for either short-term speculators or long-term investors. The upside targets for this stock are:

$58.58 (fair value)
$70.71
$83.95

Edson Gould’s Altimeter indicates that while Northern Trust (NTRS) isn’t at the all time low, it may be forming a base in the stock’s price. At the current price of $41.47, NTRS hit a critical base (blue line) in March 2003 and December 2008. The short-term upside target is $62 as represented by the blue circle. The $62 mark coincides with Value Line’s $63 fair value price and Dow Theory’s fair value of $58.58. The most optimistic outlook for NTRS is for the stock price to rise to $83.85 as indicated by the green circle.

As a side bar, if NTRS were to rise as high as the September 2000 peak the stock would be priced at $156. However, we cannot, at this time, take the position that NTRS would rise to such a level of overvaluation unless and until the stock exceeds the $83.85 level.

Our worst-case scenario is that NTRS declines to the $28 level as represented by the red circle. We are adamantly against investors ruling out the prospect of losing at least 50% of their position. For this reason, NTRS falling to $28 is just as real in our minds as the prospect of rising to the $62 level.

As a potential sign of things to come, it was announced on Tuesday August 31, 2010 that Northern Trust was granted a Beijing branch license. Although the prospects of China have been a topic of much debate since Columbus tried to do an end run around Marco Polo’s silk road, we believe that Northern Trust is methodically positioning itself to reap rewards regardless of the rumors of China’s opportunities.

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Posted in Altimeter, investment observation, Northern Trust, NTRS

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Northwest Natural Gas (NWN) Altimeter

Posted on September 22, 2009 by NLObserver Team | Comments Off

Today's altimeter is on Northwest Natural Gas (NWN) and there is a lot to appreciate when we exam the pattern that has been established so far. NWN has increased its dividend for 53 years in a row. With such a history of dividend increases, I think NWN will do everything it can to avoid cutting or leaving the dividend the same. At the price of $42.29, NWN is within 16% of the 52-week low.

NWN has a challenging altimeter to decipher until you take a closer look. The pattern that has been established since 2000 until the present is an exact replication of the move from the period 1995 to 1997 (shown in the inset.) After the 1995 to 1997 moves we can see that the stock traded in a wide range until the ultimate low in 2000. From the 2000 low the stock traded in a narrow ascending range, offering several clear opportunities to buy and sell the stock.

Although I have taken artistic license on the interpretation of this altimeter, I do believe that the possibility may exist that NWN will not go materially below the March 2009 low. With the recent decline in natural gas prices, NWN offers a reasonable investment opportunity with a long history of dividend increases and a fair payout ratio. NWN is definitely worth investigating at the current levels. Let us hope that the stock price declines while you're doing the research on this company. Touc.

Please revisit Dividend Inc. for editing and revisions to this post.

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Posted in Altimeter, Edson Gould, Northwest Natural Gas, NWN

Weyco (WEYS) Altimeter

Posted on September 21, 2009 by NLObserver Team | Comments Off

Below is a chart of the Weyco (WEYS) altimeter. As we can see, WEYS trades in a range between 275 on the high end and just above 150 on the low end of the range. Given WEYS balance sheet and the products that it produces (Florsheim shoes) this company is worth investigating.

One consideration is the fact that WEYS has tremendously low trading volume. Additionally, this stock has only increased its dividend 10 years in a row which means that we can't be sure that the company can weather an true economic cycle. However, as mentioned before, this company has no debt and my be worth a second look. Touc.

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Posted in Altimeter, Edson Gould, Weyco, WEYS

Bank of Hawaii (BOH) Altimeter

Posted on September 21, 2009 by NLObserver Team | 1 comment

The chart below is a representation of the Bank of Hawaii (BOH) altimeter. BOH has increased its dividend every year for 31 years in a row. As we can see, BOH's altimeter has been in a rising trend for quite some time.That trend was recently broken during the recent banking crisis.

The channel that BOH has managed to fluctuate within suggests that the stock is overvalued at the high end and undervalued at the low end. The period of extreme overvaluation is reflected in 2003 and started to move in a declining trend to undervaluation when BOH increased the dividend from $0.19 to $0.30.

There are two periods of extreme undervaluation in the altimeter. The first level of extreme undervaluation hit bottom in October 2000. The second period was most recently in March of this year. If the stock were to go back to the "historical" low end of the range, BOH would be priced at $54 a share. Although we do not have an extensive history on the periods of extreme undervaluation, it could be inferred that, based on the altimeter, an investment in BOH while not risk free, could be considered low risk.

At least one hitch to my assessment on BOH, in terms of the altimeter, is the fact that the low in March 2009, around the 60 level, could be part of a normal low range that is being established for the stock. If the 60 level is the low end of a new long-term range, my best guess is that the 110 level is the upper end of the range. At the 110 level, BOH stock price would be $49.50.

Only time will tell whether the escalating failure of banks is going to spread even further. However, BOH has managed to fare better than most banks of a similar size. As a further indication of BOH's strength, the dividend increase in November 2008 suggests that management believes the company will survive through the present banking liquidation cycle. Regardless of BOH's strength, I wouldn't be surprised if BOH does not increase the dividend in November. However, if a cut in the dividend takes place then I would be more cautious on the company and the stock. Touc.

Bank of Hawaii Tops List (9/14/2009)
Sell Bank of Hawaii at the Market (8/6/2009)
Bank of Hawaii Update (2/7/2009)
Research Recommendation: Bank of Hawaii (BOH) at $37.76 (1/12/2009)

Please revisit Dividend Inc. for editing and revisions to this post.

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Posted in Altimeter, Bank of Hawaii, BOH, Edson Gould

Wal-Mart (WMT) Altimeter

Posted on September 21, 2009 by NLObserver Team | Comments Off

Below is a chart of Wal-Mart's altimeter. As mentioned before, the purpose of the altimeter, created by Edson Gould, is to determine the relative value of a company based on the quarterly dividend payment and the daily price of the stock or index.

Based on the above chart, we can see that WMT is traditionally overvalued between 1100 and 1200 level. Additionally, when WMT falls to the 550 level the company is considered undervalued. What should be noticed is the double bottom that took place in the 1995 to 1997 period. After that time, WMT took off like a rocket.

In the most recent period from 2007 to 2009, we can see that WMT is forming a similar double bottom. From this indication, we should look out for the stock to rise significantly over the next four years. The expected rise in WMT should be in spite of all the economic forecasts of a continued decline in the economy.

The chart below is my own interpretation of WMT if the company pursued a less aggressive policy of increasing the dividend at such a high rate.

In the first chart, you can see that after 2004 WMT fell to an extreme level of undervaluation. The reason this occur is because WMT continued in increase the dividend at a high rate even though the company didn't have the earnings to support such increases. With diminished earnings, WMT issued more shares to raise capital to fund the dividend payments at the expense of per share earnings.

My model continues to increase the dividend every year but at a rate of 50% less than what WMT did from the period of 2004 to the present. This lowers the number of shares that need to be issued. In fact, my model would not have required the issuance of new shares to cover the dividend.

At the moment, we could consider WMT undervalued. However, keep in mind the fact that the continued issuance of shares in order to keep the dividend history intact undermines future earnings growth.

Values Biding Time

Please revisit Dividend Inc. for editing and revisions to this post.

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Dow Jones Industrial Altimeter

Posted on September 8, 2009 by NLObserver Team | Comments Off

When considering where we are it helps to see where we've been. Implicit in this thought is the idea that we use as many perspectives as possible in order to build context around our view. One such tool that is worth looking at is the Dow Jones Industrials Average Altimeter.

Historically, since 1871 (Cowles Commission Expectation of Individual Stocks), the altimeter has indicated that whenever the Dow Industrials went above the 30 range the market was overvalued and whenever the market was below 15 the market was undervalued. As illustrated in the chart below, since 1920 the Dow Industrials followed this pattern quite well until the breakout above 38.47 on June 13, 1995 (point X).

After the January 13, 1950 (point J) buy signal, the altimeter gave numerous sell signals from 1961 (point K) to 1972 (point R). At any point that the sell signals were given, except for 1961 (point K), you would have avoided the major market declines of the late 60's and throughout the 1970's. When the next buy signal was registered on December 13, 1974 (point S) the stock market was off to the races and never looked back.

From December 13, 1974 (point S) until the present we've been confronted with an unprecedented pattern change in the altimeter. Even though the pattern that was established no longer seems to fit previous indications, it is important to note that the indicator is giving us a massive head and shoulders technical pattern to watch for.

After the peak in the altimeter on August 25, 1987 at 38.24 (point V) and the subsequent crash that followed, the market bounced from the 1989 bottom (point W) at 21.14 to the 38.07 level in December 28, 1993. The declined that followed the 1993 peak signified that the 38 level was very important to watch for. Of course, after falling to the 1995 level of 32.88 (point X) the altimeter went to the unprecedented level of 68.13 in 1999.

Everything that has happened since 1999 has only cemented the significance of the 38 and 21 levels on a technical basis. The reversal of the decline from 1999 to 2003 at 36.06 (point X1; near 38) and the congestion, and subsequent crash, in 2007 led to the altimeter falling back down to 21 on March 9, 2009.

If we get lucky, we could see the Dow go back to the 38 level. This means that we could possibly reach the 10,901.44 on the index. After reaching the 38 level we should expect the stock market to decline at least to the 21 level again. However, the current trend is still indicating a downward trend since hitting the most recent peak of 33.53 on August 27, 2009.

Let's watch how closely the head and shoulders pattern is established. If we do complete a head and shoulder pattern, then we could expect that after reaching 10,901.44 the Dow will go back to 6024.48. If we go significantly beyond 10, 901. 44 then I'll have to reassess the situation at that time. Touc.

Please revisit Dividend Inc. for editing and revisions to this post.

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Dow Industrials Altimeter

Posted on September 7, 2009 by NLObserver Team | Comments Off

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Category Archives: Altimeter

Gold Stocks to Consider Based on Our Indicator

Apple Inc.: Edson Gould’s Altimeter as if AAPL were a Dividend Achiever

Investment Observation: Northern Trust (NTRS) at $47.26

Northwest Natural Gas (NWN) Altimeter

Weyco (WEYS) Altimeter

Bank of Hawaii (BOH) Altimeter

Wal-Mart (WMT) Altimeter

Dow Jones Industrial Altimeter

Dow Industrials Altimeter

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