On Thursday May 21, 2015, we executed the following transactions:
- Japan
- Market Indicator
- Price Momentum Indicators
- Richard Russell
- Silver
- Speed Resistance Lines
- U.S. Dividend Watch List
Industrial Production Index
Below is a table with the number of instances when the Industrial Production Index declined at least five months in a row. We have also noted whether or not there was a coincidence with the period of decline in the Industrial Production Index with the National Bureau of Economic Research (NBER) definition of a recession.
Analyst Estimates: May 15, 2015
Below are the price projections based on analyst earnings estimates for the first 20 stocks on our recent U.S. Dividend Watch List dated May 15, 2015. These estimates project the price change for the respective stocks in the next 12 months.
GMCR: Downside Targets
On October 25, 2011 when Green Mountain Coffee Roasters (GMCR) was trading at $63.85, we projected conservative and extreme downside targets of $59.93 and $37.21, respectively. Subsequent price action for the stock brought the price as low as $17.11. After achieving the downside target the stock rose as high as $158.87 by November 2014. The potential gains of acquiring GMCR below either downside target was +165% and +326%.
The problem with this modeling of the past is having the fortitude of buying the stock and watching it fall –66% before the subsequent rise. Can you handle a decline of –50% or more in your investments? If you can’t sleep at night with losses of –50% or more then don’t bother reading any further as what follows is speculation of what would happen if history were to repeat (NOTE: history does not repeat).
Alternate reading on portfolio losses of –50% or more by Charlie Munger.
Posted in Edson Gould, GMCR, speed resistance line, SRL
Dow Theory: Industrial Production Tipping the Scales
This is our first update to Dow Theory review since October 17, 2014. At the time, we closed with the following commentary:
“All reasonable interpretations of Dow Theory should indicate that we are in a bear market.
“Most Dow Theorists would suggest that investors sell all stock holdings in order to avoid losses. However, we only use Dow Theory as an asset allocation tool. Therefore, we will add cash to our holdings and trim some positions. Outright selling of all stock positions is not conducive to the concept of compounding income, which is our long-term goal.
“Finally, all is not lost. In order to change the view that we are in a bear market, the Dow Industrials, Transports and Russell 2000 only need to exceed their previous all-time peaks. This partially explains the reason why it may not be advisable to sell all positions based on a Dow Theory bear market indication.”
Our assessment of a Dow Theory bear market indication was supported by an October 19, 2014 posting by Dow Theorist Tim Wood. In his review of Dow Theory, Wood said:
“This all said, on Friday, October 10, 2014, the Transports closed below their August 7th Secondary Low Point. On Monday, October 13, 2014, the Industrials followed with a close below their August 7th Secondary Low Point. In the wake of this development, I have sat quietly to see what, if anything, would be written on this development. The current Dow Theory chart can be found below. As a result of this joint close below the previous secondary low points, an orthodox Dow Theory Primary Bearish Trend change has been triggered (Wood, Tim. Dow Theory Update. October 19, 2014.)”
Seven months later, the changing market conditions indicate that commentary on Dow Theory is necessary.
U.S. Dividend Watch List: May 15, 2015
Top Five Watch List Performance Review
In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from May 17, 2014 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 |
| AIT | Applied Industrial Technologies | 45.78 | 42.66 | -6.8% |
| STT | State Street Corp. | 63.19 | 77.85 | 23.2% |
| EV | Eaton Vance Corp. | 35.71 | 41.30 | 15.7% |
| TR | Tootsie Roll Industries Inc | 28.01 | 30.90 | 10.3% |
| TRMK | Trustmark Corp. | 22.95 | 23.95 | 4.4% |
| Average | 9.3% | |||
| DJI | Dow Jones Industrial | 16,491.31 | 18,272.56 | 10.8% |
| SPX | S&P 500 | 1,870.85 | 2,122.73 | 13.5% |
Applied Industrial Technologies (AIT) topped our list last year. While the stock traded near the 52-week low, it doesn't imply that it should be bought but rather the beginning for research. We stated the following about the stock last year.
A quick glance at AIT and we find that the company is trading about 17% below its 5-year average, on P/E basis. On a cash flow basis, the company is trading about 20% above the 5-year average (figure from Morningstar). A secondary source of valuation we refer to is Value Line Investment Survey, which suggests a fair value of $38.50 which is 15% below the current price.
AIT traded down as low as $40 then rebounded back to the $42 range. With shares fallen by -7% year-over-year and is trading closer to the fair value estimate, now might be a better opportunity to start your research.
The best performing stocks from the top five was State Street (STT). We didn't highlight many things about the stock but only the fact that it was trading slightly above its 5-year average based on fundamental figures such as Price/Earning and Price/Book. The fact that State Street rose +23% despite trading at more than its historical average proves that historical figures are only part of the story. Continue reading
Canadian Dividend Watch List: May 15, 2015
Below is the Canadian Dividend Watch List and the estimated change over the next 12 months.
Nasdaq 100 Watch List: May 8, 2015
Performance Review
Below is the performance of the Nasdaq 100 watch list from May 9, 2014:
| Symbol | Name | 2014 | 2015 | % change |
| DISCA | Discovery Comm. | 37.33 | 31.33 | -16.07% |
| BBBY | Bed Bath & Beyond Inc. | 61.31 | 71.44 | 16.52% |
| ISRG | Intuitive Surgical, Inc. | 353.06 | 494.32 | 40.01% |
| NTAP | NetApp, Inc. | 34.19 | 35.65 | 4.27% |
| EBAY | eBay Inc. | 50.54 | 58.82 | 16.38% |
| ALTR | Altera Corp. | 32.38 | 44.46 | 37.31% |
| WFM | Whole Foods Market, Inc. | 39.32 | 42.58 | 8.29% |
| SIRI | Sirius XM Holdings Inc. | 3.16 | 3.87 | 22.47% |
| VRSK | Verisk Analytics, Inc. | 60.53 | 73.66 | 21.69% |
| COST | Costco Wholesale | 115.39 | 145.88 | 26.42% |
| LMCA | Liberty Media Corp. | 34.18 | 37.93 | 10.97% |
| SRCL | Stericycle, Inc. | 113.90 | 134.01 | 17.66% |
| CERN | Cerner Corporation | 50.19 | 68.02 | 35.53% |
| CA | CA Technologies | 29.41 | 31.60 | 7.45% |
The average gain of the entire list was +17.78% while the top five stocks (DISCA, BBBY, ISRG, NTAP, EBAY) gained an average of +12.22%. This compares with the gain for the Nasdaq 100 index of +23.41% in the same 1-year time period.
As has frequently been the case, analyst expectations were too optimistic for stocks on the far right (DISCA, CA, CERN, SIRI, NTAP) where the average gains of +10.73%. Likewise, the view was too pessimistic for stocks on the far left (LMCA, ISRG, WFM, COST, BBBY) which averaged +20.44% in the above chart.
The absolute change in Liberty Media (LMCA) and Intuitive Surgical (ISRG) was the most extreme. Liberty Media saw its p/e ratio expand from 20 to 72 while ISRG’s p/e ratio increased from 26 to 39. The increase in the p/e ratio should be expected with the increase in price. However, value oriented investors would have overlooked these stocks simply because of the high p/e ratios and the expectation of lower earnings by analysts in 2014.
Watch List: May 8, 2015
Below are the Nasdaq 100 stocks of interest:
Transaction Alert
On Monday May 4, 2015, we executed the following transactions: Continue reading
Review: Cognizant Technology Solutions
On May 4, 2015, Cognizant Technology Solutions (CTSH) surged more that +8% after earnings and revenue beat expectations and raised their 2015 outlook. Below is a charting of CTSH after appearing on our June 8, 2012 Nasdaq 100 Watch List.
Posted in CTSH
Insurance Watch List: May 1, 2015
Is the U.S. insurance sector running out of gas? By the looks of the chart below, all indications are that the glorious run from the 2009 low may be over. The iShares US Insurance ETF (IAK) seems to be running out of steam just as it approaches the previous high set in 2007. A breakout to the upside is possible but not before taking a break to the downside.
The only consideration at this time is downside risk. The chart above outlines the Dow Theory downside targets with Edson Gould’s SRL extreme downside target of $16.81. Short-term, the downside target of $37.41 looms as a reasonable reaction from the recent peak before the sector potentially retests the prior high. The $30.91 level is considered the fair value for the IAK and should be assumed to be a required level for a retest if a full bear market ensues. As $11.38 was easily achieved from similar heights in the period from 2007 to 2009, so too should investors be willing to accept that $16.81 is possible.
Insurance Watch
Posted in IAK, Insurance Watch List
Gold Stock Indicator: May 1, 2015
Gold stocks were up while gold was down in the past week.
Gold Stock Indicator: Long Term Charts
LinkedIn Corp. Downside Targets
On April 30, 2015, in after-hours trading, LinkedIn (LNKD) declined –20.95% from the closing price of $252.13 to $199.30. with such a decline, it is worth considering what the downside risk would be according to Edson Gould’s Speed Resistance Lines (SRL).
The above chart shows the current SRL downside targets based on the peak price of $276.16:
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$187.68 (conservative target)
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$139.87 (midpoint target)
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$92.06 (extreme target)
What is most relevant in this SRL is the downside targets from the previous peak at $256.14. At that time, LNKD had the following downside targets:
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$181.00 (conservative target)
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$133.19 (midpoint target)
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$85.38 (extreme target)
In the prior decline, LNKD fell to slightly below the midpoint target at $133.19. This suggests that the current slump should go below the conservative downside target of $187.68. Going below the $187.68 level should get the stock price to the ascending midpoint target of $139.87. 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.
Worth noting is that anyone who had a standing stop loss order with their broker, say below $250 or $240, will be forced out of their position once the stock market opens on May 1, 2015 at whatever the opening price is as long as it is below either of the sample levels. At $199, investors with stop loss orders will take a severe beating even though they may not have been involved in the after hour activity.
Posted in Edson Gould, LNKD, speed resistance line, SRL
U.S. Dividend Watch List: April 24, 2015
By the end of the week, the market closed at its all-time high. While S&P 500 and Nasdaq reached the historical mile stone, the Dow Industrial and Dow Transport are lagging behind. The Dow Industrial will need to top 18,288 while the Transport needs to peak 9,217. At the end of the week, there are 58 companies on our dividend watch list. Continue reading
Nasdaq 100 Watch List: April 24, 2015
Performance Review
Below is the performance of our April 25, 2014 watch list.
| Symbol | Name | 2014 | 2015 | % chg |
| BBBY | Bed Bath & Beyond Inc. | 62.48 | 72.53 | 16.09% |
| CTRX | Catamaran Corporation | 38.95 | 59.56 | 52.91% |
| SIRI | Sirius XM Holdings Inc. | 3.12 | 3.96 | 26.92% |
| NTAP | NetApp, Inc. | 35.00 | 36.12 | 3.20% |
| ISRG | Intuitive Surgical, Inc. | 366.37 | 505.92 | 38.09% |
| DISCA | Discovery Comm | 39.14 | 32.71 | -16.43% |
| VRSK | Verisk Analytics, Inc. | 57.81 | 72.68 | 25.72% |
| COST | Costco Wholesale | 115.01 | 148.12 | 28.79% |
| ALTR | Altera Corp. | 33.09 | 40.89 | 23.57% |
| SRCL | Stericycle, Inc. | 113.96 | 136.94 | 20.16% |
| CERN | Cerner Corporation | 49.51 | 73.32 | 48.09% |
| ROST | Ross Stores Inc. | 67.77 | 104.38 | 54.02% |
| MAT | Mattel, Inc. | 37.99 | 30.20 | -20.51% |
| DLTR | Dollar Tree, Inc. | 51.36 | 81.14 | 57.98% |
The average return for the entire list was +25.62% compared to the Nasdaq 100 index gaining +28.41% in the same period of time. The top five stocks on our list (BBBY, CTRX, SIRI, NTAP, ISRG) gained +27.44% in the last year (excluding dividends).
As is common with our watch lists, a stock is being acquired at what we believe is a premium. CTRX is being acquired by UnitedHealth (UNH), a Dow Jones Industrial Average component. At the time of our watch list last year, CTRX was within 3% of the low. Additionally, the announcement of the purchase by UNH followed the pattern of many companies buying the intended target after a gain over of +24% within the year and +177% within the last 5 years.
Nasdaq 100 Watch List: April 24, 2015
Below are the 9 Nasdaq 100 stocks that we think are worth your consideration: