Gold Stock Indicator: May 2016

Posted on May 7, 2016 by | Leave a comment

You want higher gold prices? You got higher gold prices.  However, we have to add, be careful what you ask for.  The anxiety associated with what's gonna happen next in gold and gold stocks will have investors and speculators looking over their shoulders.  This will mean many sharp declines and dramatic recoveries.

In the month since our last posting, gold has increased only +6.21% while the price of the Philadelphia Gold & Silver Stock Index (XAU) has increased +26.97% in the same period of time.

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In our October 3, 2014 posting,  regarding the XAU Index, pointed out the following:

“In the chart above we have labeled the three potential downside targets of 75.99, 67.55 and 59.11 from the current level with the additional downside target of 41.85 as the ‘last stop’ in our downside analysis.  Anything below the ascending 76.32 level is considered undervalued and underappreciated.”

Little could we have known that the index would actually decline to 38.84, a level below the end of the last bear market that ran from 1996 to 2000.  The chart below points to where the current run up could meet significant resistance.

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Coppock Curve: April 2016

Posted on May 4, 2016 by | Leave a comment

The Dow Jones Industrial average rose +0.5% in April. After flashing a buy signal the previous month, the indicator turned negative which is a flash signal. We noted that the pattern was similar to the one that occurred in 2001. Although this may be a false signal, we're standing pat on our investments and would continue to allocate additional funds if and when the indicator flags another buy signal. Continue reading →

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Nasdaq 100 Watch List: April 29, 2016

Posted on May 1, 2016 by | Leave a comment

Performance Review

Below is the performance of the Nasdaq 100 stocks from our April 24, 2015 watch list:

symbol Name 2015 2016 % chg
KLAC KLA-Tencor Corp. 58.89 69.94 18.76%
GRMN Garmin Ltd. 46.19 42.63 -7.71%
FOSL Fossil Group, Inc. 83.75 40.5 -51.64%
FAST Fastenal Co. 41.63 46.79 12.39%
WYNN Wynn Resorts Ltd. 130.09 88.3 -32.12%
SNDK SanDisk Corp. 67.92 75.13 10.62%
NTAP NetApp, Inc. 36.12 23.64 -34.55%
NWSA News Corp. 15.53 12.42 -20.03%
QCOM QUALCOMM Inc. 68.24 50.52 -25.97%

The analyst estimates of one year ago are compared to the actual performance.  As can be seen, 3 of 4 stocks expected to decline did while 2 of 5 stocks rose in price that were anticipated to rise.

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We mentioned or discussed a few stocks of interest at the time. QCOM and FOSL bombed while SNDK and KLAC exceeded expectations. However, the one stock that stood out the most was regarding NetApp (NTAP).  At the time, we said:

“Investors should remember that with analyst estimates for a +44% gain in the coming year, there is the possibility that expectations are so high that any minor earnings or revenue miss could crater the stock.  In spite of the potential negatives, we think that NTAP could be a takeout target in the next year.”

While there was some talk of NTAP as an acquisition target, the reality was that it was just talk and not much else.  However, the most important issue at the time was proven to be correct, excessive expectations of gains by analysts were met by the most negative divergence in performance.

Nasdaq 100 Watch List

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Short Sell Ends Well, Trader Lost Everything

Posted on April 29, 2016 by | Leave a comment

Remember that trader who appealed to the public for assistance after his short sale turned into a -$106K loss overnight?  If you don’t then you could read the full story here. 

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The trader had bet that KaloBios (KBIO) would decline in price instead of rise.  Unfortunately, the opposite occurred, putting the trader in the unlikely position of going from a cash positive brokerage account to a deficit of more than -$100,000.

Irony of all ironies, KaloBios Pharmaceuticals ends up filing bankruptcy on December 30, 2015 after Chief Executive Martin Shkreli was arrested for securities fraud.  Below is the price history of KBIO from 2014 to the present.

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What’s the moral of the story?  Anything can happen and the chasm between entering and exiting a transaction can be wide and deep.  Always prepare for the worst.

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Posted in Black Swan, Nipper Panic, short selling

Apple Addition to Dow: Unwise and Untimely

Posted on April 29, 2016 by | Leave a comment

On September 24, 2015, we said the following:

“The outperformance of stocks dropped from an index is not as unusual as it would seem.  Typically, index managers tend to drop stocks that appear weak in price performance and going through a transition to resolve the internal issues contributing to their weakness.  At the same time, stocks that are added to an index just coming off a period of exceptional growth and are about to experience a readjustment period resulting in a decline in their stock price.  The result is stocks being added to the index will adjust lower in price while the timing of the companies dropped from the index coincides with a resurgence in earnings surprises and increased stock price.”

So far the conundrum continues as more than one year later the addition of Apple (AAPL) to the Dow Jones Industrial Average has resulted in a decline of –24%.  At the same time, the stock that Apple replaced, AT&T (T), has increased by +16%.

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Posted in Additions and Deletions, re-rank review

Transaction Alert*

Posted on April 29, 2016 by | Leave a comment

The NLO team executed the following transaction(s):

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U.S. Dividend Watch List: April 22, 2016

Posted on April 24, 2016 by | Leave a comment

Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from April 24, 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
GRC Gorman-Rupp Company 27.99 28.95 3.4%
SAFM Sanderson Farms, Inc. 76.06 87.76 15.4%
TCO Taubman Centers 73.65 69.33 -5.9%
SJI South Jersey Industries 26.85 27.51 2.5%
DCI Donaldson 37.37 33.03 -11.6%
      Average 0.8%
         
DJI Dow Jones Industrial 18,080.14 18,003.75 -0.4%
SPX S&P 500 2,117.69 2,091.58 -1.2%

Watch List Review

The biggest gain came from a company unfamiliar to us, Sanderson Farms (SAFM). A year ago we said that this is a new company which we had no exposure to prior to the watch list. This small cap producer of poultry products had net earnings fall by -42% and yet the stock gained +15%! While one may view this as a disconnect in the fundamentals, another could argue that such expectations were baked into the price. When we published the list last year, shares were trading at $76 with projected net income of $7.05 which brings forward P/E to just 10x. Such low multiple imply that any miscalculation in the analysts' estimate (to the downside) would result in a strong recovery in share price. We believe this was the case with Sanderson Farms.

We wrote a quick note on Gorman-Rupp (GRC), which etched out a modest gain of +3%. However, that gain wasn't without some volatility. When we published the list, the stock was trading at $28. The shares traded below $20 in August (hit the low of $18.14 on August 22 but closed above $22). The reversal came the same day and shares traded as high as $32. We stated that shares were worth considering at such level but didn't have complete conviction over the name. However, if one was able to pick up shares on a two part trade, one would have done quite well within one year.

U.S Dividend Watch List: April 8, 2016

It was another strong week for the market as the S&P 500 rose +0.53% pushing the YTD gain at +2.3%. Because of that, there are only 9 companies on our watch list this week. We are not inclined to put new money to work at this point. However, the financial sector is appealing at the moment and any new money needs to be able to generate relatively safe income. Continue reading →

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Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List

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Richard Russell Review: Letter 859

Posted on April 20, 2016 by | Leave a comment

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.

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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.

Continue reading →

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Toy Stocks Up, But Why?

Posted on April 18, 2016 by | Leave a comment

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.

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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.

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Posted in Hasbro, MAT, Mattel

Insurance Watch List: April 2016

Posted on April 17, 2016 by | Leave a comment

Below is the Watch List and Analyst Estimates for insurance stocks.

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Review: LinkedIn Corp.

Posted on April 11, 2016 by | Leave a comment

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.

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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.

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Posted in Edson Gould, LNKD, speed resistance line, SRL

Canadian Dividend Watch List: April 2016

Posted on April 10, 2016 by | Leave a comment

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%.

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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.

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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.

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U.S. Dividend Watch List: April 8, 2016

Posted on April 10, 2016 by | Leave a comment

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 →

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Posted on April 4, 2016 by | Leave a comment

"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

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Posted in Charles H. Dow, Quote of the Day

Gold Stock Indicator: April 2016

Posted on April 3, 2016 by | Leave a comment

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%.

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Posted in gold, gold bugs, Gold Stock Indicator

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