Below is the 6-year performance of our Dividend Watch List from October 14, 2011 to October 13, 2017 as compared to the Dow Jones Industrial Average.
Posted in NLO analysis, Uncategorized
Below is the 8-year performance of our Dividend Watch List from October 16, 2009 to October 13, 2017 as compared to the Dow Jones Industrial Average.
Posted in BCR, BDX, NLO analysis, SHEN
If anyone has managed to follow our work on the topic of Bitcoin, we can only lay claim to the October 7, 2014 call for “Speculators to Unite” when the cryptocurrency was priced at $334.09. At the time, we said the following:
“…bitcoin is worth the plunge. Based on the revised price peak of $1,147.25, bitcoin has a conservative upside target price of $723.34 and an extreme upside target of $1,446.68.”
Since October 7, 2014, we have issued revised upside targets and downside targets that have been generally within the range of expectation. Our last published upside target for Bitcoin was $6,260.91 as seen in the September 5, 2017 posting titled “Bitcoin: Setting the Stage.” The graphical representation of the price of Bitcoin since October 7, 2014 is staggering and worth a refresher view.
At this point, as Bitcoin sits within 7% of the last published target, we cannot take seriously the updated target that has been generated ($7,166.29) based on our Speed Resistance Line calculations. We are throwing in the towel on taking the $7,166.29 figure, and any future upside targets that go uncorrected to the tune of –50% or more, as something we can feel confident is worth the speculation.
Posted in Bitcoin
For anyone who claims that the current bull market is a Federal Reserve induced binge based on manipulated monetary policy, this market still has to exceed the bull market that followed the decline of 1852 before the non-central bank era bull markets could be legitimately ignored. For those willing to look at the history of stock market recoveries, we present the top ten market recoveries from 1835 to 2017.
Posted in cycle analysis, Federal Reserve Bank, Rank
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.
Chapter 7 of The Intelligent Investor by Benjamin Graham offers up a “Portfolio Policy for the Enterprising Investors: The Positive Side.” In this chapter, there is mention of “The Relatively Unpopular Large Company” which is essentially a Dogs of the Dow investment strategy. Unlike the Dogs of the Dow, this approach does not focus on the highest yielding stocks in the Dow Jones Industrial Average.
The distinction of this strategy is the fact that it is based on the selection of the ten Dow Jones Industrial Average stocks with the lowest price to earnings (p/e) ratio. This group is contrasted with the performance of the 10 highest p/e ratio stocks and the entire index. The performance measures the price change over 5-year periods from 1937-1969 as shown below with our own 1-year comparison from November 4, 2016 to October 10, 2017.
Below is the Altimeter for Walgreens Boots Alliance (WBA) with fair value (FV) overvalued and undervalued targets.
It's been several months since we last updated the Coppock Curve. The reason was that once the indicator is in the positive territory, it provide no substantial value to long-term investor.
However, the indicator has reached an interesting level with strong resistance to the upside. We'll elaborate further after review of the chart below. Continue reading
Performance Review
The following is the performance of the Insurance Watch List stocks that we published in October 2016.
| symbol | name | 2016 | 2017 | % chg |
| THG | The Hanover Insurance Group, Inc. | 78.97 | 97.68 | 23.69% |
| HALL | Hallmark Financial Services Inc. | 10.25 | 11.59 | 13.07% |
| CNO | CNO Financial Group, Inc. | 15.67 | 24.04 | 53.41% |
| ORI | Old Republic International Corp. | 18.32 | 19.6 | 6.99% |
The average return for the four stocks was +24.29% as compared to the iShares Dow Jones US Insurance Index ETF (IAK) gain of +20.27%. The analysts called the performance of the stocks fairly well as indicated in the chart below.
Of the four stocks, only Hallmark Financial Services (HALL) was not able to exceed expectations (assuming the low estimate and the price of the stock maintained the same p/e ratio).
In our “Sell the Principal” section we outlined the stocks that we thought investors should consider selling the principal as the price of the stocks had exceeded all reasonable one year gains. Below is the performance of the list of stocks in the order as presented at the time.
| name | 10/16.2016 | 10/6/2017 | % change |
| Syncora Holdings Ltd. | 1.35 | 2.06 | 52.59% |
| Genworth Financial, Inc. | 5.05 | 3.63 | -28.12% |
| Crawford & Company | 11.68 | 11.89 | 1.80% |
| Hilltop Holdings Inc. | 23.15 | 26.08 | 12.66% |
| Lincoln National Corporation | 48.9 | 75 | 53.37% |
| Endurance Specialty Holdings Ltd. | 91.89 | 92.98 | 1.19% |
| Principal Financial Group Inc. | 52.33 | 66.65 | 27.36% |
| Kingsway Financial Services Inc. | 5.65 | 5.95 | 5.31% |
| National Interstate Corporation | 32.42 | 32 | -1.30% |
| Stewart Information Services Corporation | 46.36 | 38.01 | -18.01% |
| Unum Group | 36.37 | 52.54 | 44.46% |
The entire list gained an average of +13.76% as compared to the iShares Dow Jones US Insurance Index ETF (IAK) gain of +20.27%. Only four stocks exceeded the performance of IAK (UNM, LNC, PFG, and SYCRF). Meanwhile, the remaining list of stocks performed well below the +20.27%. More than half the list showed below average or negative returns. This month’s “Sell the Principal” list has refined how the data is interpreted with the stated goal of highlighting those stocks expected to register negative returns after a review in October 2018.
On September 27, 2017, we executed the following transaction(s): Continue reading
Posted in Transaction Alert
China Lodging Group (HTHT) is primed for downside action. The only issue is, will the stock really achieve the conservative downside target of $59.24 or –52.72%?
We can say with a high level of confidence that the $92.27 level is a certainty. While it is normal for a stock price to retrench –50% or more after a parabolic rise, there are potentially outside sources to mute the downside reaction. In spite of any effort to hold the stock up market realities will set in and bring the stock price close to the conservative downside target.
Posted in China Lodging Group, entropy, HTHT, parabolic
This is an important concept and strategy which requires some self discovery. To answer this question, the first thing one must do is to determine if one is a long-term investors or simply here to speculate. The best quote on this topic can be found below.
Our opinion depends on the person and the situation. A trader should never average down, only averaging up. A long-range investor who feels the company is down steeply because of temporary factors, and is near Major Support, should certainly average down. But for near-term action, nothing beats averaging up. This philosophy of buy-high-sell-higher is based on the theory that if your original judgement was correct, you should put more money behind it, rather than throwing good money after bad, as you do when you average down.
James Dines. How The Average Investor Can Use Technical Analysis For Stock Profits, 1974. Page 141
Our strategy of observing companies at or near the yearly low implies that buy-high-sell-higher is out of our comfort zone. However, we respect the wisdom from other market observers and recognized the importance of speculation.
Posted in Buy Low and Sell High, James Dines
In our posting of October 22, 2016, we highlighted the Analyst Estimates for the Dow Jones Industrial Average. We took the analyst low estimated earnings and with a price to earnings ratio of 15 projected one year out. Below are the estimated returns and the actual returns as of September 29, 2017.
In our assessment of October 22, 2016, we had proposed the following outcomes to watch for:
In the category indicated as “high risk” the estimate by analysts suggested that the group would decline by more than –24.02%. However, instead of falling, the high risk group has gained as much as +21.32%. The “average return” group nearly doubled the expected return as determined by analysts. Finally, the group indicated as “high expectations” gained half as much as the analysts had indicated based on the projected earnings with a price multiple of 15 times.
As outlined in the graph above, the projected return of the “NLO dogs” increased by +17.29% instead of declining –13.30%. However, that exceptional reversal of fortune was not enough to meet our goal of the “NLO dogs” beating the traditional “Dogs of the Dow” investment strategy.
Thoughts
While there are three weeks remaining for the final 1-year numbers to come in, we’ve had some mixed results with our forecasts on expected returns. Overall, the selection of companies in the most widely followed index should have similar outcome as outlined in 2016.
Those stocks that are expected to perform the worst will exceed the prescribed returns while those expected to outperform will generally underperform analyst expectations. We hope to follow up on the overall performance of the “high risk” group to see if the 3-7 year performance manages to hold up to our expectations.
Regarding the “Dogs” investment strategy, while it is nice for the stocks that we selected to exceed the performance of the analysts, the original theory seems to remain consistent, at least in the period from 2016 to 2017.
Posted in Analyst Estimate, dog of NLO, dog of the dow
In a graphic provided by the cost information website HowMuch.net, there is a eye opening review of crypto currencies compared to well known companies like Facebook,PayPal, and others.
On one side are companies providing services that seems to be increasing in demand. PayPal is an online payment system, Expedia is an online travel agency, Zillow is an online real estate resource, Brighthouse Financial is an insurance company, Groupon is an e-commerce marketing company. On the other side, there are five different crypto currencies.
There is no way that so many cryptocurrencies can exist, simply to do the same thing. There will have to be winners and losers. This reminds us about the market share of cell/smart phones and the change that occurred over time. In our November 7, 2010 article titled “Market Price and Market Share” we highlighted how much the cell phone market change from the the peak of the dot-com bubble to 2010. In that time, the top cell phone makers (now called “smart” phones) changed in unexpected ways.
| Top Mobile Phone Vendors 1999 | |
| Vendor | market share |
| Nokia | 32.00% |
| Qualcomm | 14.80% |
| Ericsson | 12.70% |
| Motorola | 11.20% |
| Audiovox | 7.40% |
| Samsung | 6.70% |
| Sony | 6.60% |
| source: RCR. July 5, 1999. Dataquest Inc. page 1. | |
| Top Mobile Phone Vendors 2010 | |
| Vendor | 3Q market share |
| Nokia | 32.40% |
| Samsung | 21.00% |
| LG Electronics | 8.30% |
| Apple | 4.10% |
| R.I.M. | 3.60% |
| Others | 30.50% |
| Total | 99.90% |
| Source: IDC Worldwide Quarterly Mobile Phone Tracker, October 28, 2010 | |
| Top Mobile Phone Vendors 2016 | |
| Vendor | 3Q market share |
| Samsung | 20.00% |
| Apple | 12.50% |
| Huawei | 9.30% |
| OPPO | 7.00% |
| Vivo | 5.80% |
| Others | 45.40% |
| Total | 100.00% |
| Source: IDC Worldwide Quarterly Mobile Phone Tracker, October 26, 2016 | |
What we always like to point out is that Nokia was the biggest by market share in 1999 and 2010 and yet it wasn’t the most innovative. Also, in 1999, Apple was nowhere to be found on the list of top five mobile phone vendors and yet it is among the top two today. Samsung has managed to stay among the top 6 in spite of not having the cache of Apple or (dare we say it) Rimm.
Which brings us back to the cryptocurrencies. Whoever is on top today is likely to not be a contender down the road. In fact, we believe that a yet-to-be-determined entrant will likely supplant Bitcoin as the “it” cryptocurrency. How are we going to find out the latest and greatest cryptocurrency? It will take a deflation and inflation cycle to get us there.
For now, keep in mind that there were hundreds of manufacturers of planes, trains, automobiles and mobiles phones before there were the big three. Deflation of the boom in cryptocurrencies will go a long way towards separating the wheat from the chaff.
Posted in Bitcoin, bubble, ethereum, market share
Experts on the topic of gold are a dime a dozen. However, few, if any, are actually experts at all. With the ability to be quoted day in and day out, there is little or no accountability when it comes to accuracy of claims. Of course the “expert” will not provide the gaping (and ongoing) lapses in their analysis and the published website touting them won’t bother to define what makes them an expert. All that seems to matter when qualifying as an expert on gold or gold stocks is that they are loud, speak often, never fail in their love of gold, make exaggerated claims, and go to the many headlining confabs arranged by the industry.
So what is a “real gold expert?” A real gold expert is someone who appreciates the good and bad of gold whiled able and willing to make the call, buy OR sell (no hold recommendations allowed). A gold expert that we have been working hard to get more information on is Alden Rice Wells. We know that Wells was bullish on gold stocks in the 1960’s in his Monetary Reports newsletter (PO Box 401, Exeter, NH, 03822) and was a contributor in the Inflation $urvival Letter (410 First Street S.E., Washington D.C., 2003) in the mid-1970’s.
What stands out about Alden Rice Wells? After being a big proponent of gold and gold stocks through the 1960’s and early 1970’s, Wells warned that gold and gold stocks were going to crash in May 1974. The following excerpt is from Richard Russell’s Dow Theory Letters dated May 31, 1974:
"Several subscribers have asked us to comment on the recent recommendations of Alden Rice Wells, one of the original gold bugs, that silver and gold holdings be liquidated in anticipation of a crash, or depression (Richard Russell. Dow Theory Letters. May 31, 1974. Letter 599. page 6.).”
This is the performance of the Barron’s Gold Mining Index leading up to and after Wells’ recommendation to sell gold.
In the same period of time that Wells made the call for a crash in precious metals, gold declined –33% and silver declined –25%. This is what we would consider an expert opinion on the topic of precious metals.
What do investors need in a precious metal expert? A bullish perspective when it is time to be bullish and a bearish perspective when it is time to be bearish. Where are the experts today?