Dow Theory

Posted on April 11, 2010 by | 2 comments
On Friday April 9, 2010, the Dow Jones Industrials and the Dow Jones Transportation Averages both moved to new highs at the same time. According to Dow Theory, this confirmation by both averages would indicate that the market has more room to go on the upside before a change of direction is to take place.
The path to this bull market confirmation (within a secular bear market) has been a battle with many casualties. The last week had many examples to demonstrate this point. On April 5th, the Industrials broke to a new closing high however the Transports did not confirm. On April 6th, the Transports broke to a new high but the Industrials did not confirm. On April 8th, the Transports broke above the high that was established on April 6th however the Industrials could not exceed the previous high of 10,973.55 set on April 5th.  April 9th finally cleared the air on the much needed confirmation of the market's trend.
The factors that are in favor of the continuation of the bull market are that the Industrials and Transports are 50% above their respective 2007 to 2009 declines. Additionally, prior declines within secular bear markets like 1906 to 1924 or 1966 to 1982 have had many retrenchments of 80% to 100% before falling back to the old lows. So far, the Industrials have recouped 58.42% of the previous decline. If the Industrials were to retrace a classic Dow Theory 2/3 of the previous decline, the index could go to 11,574.59 with no problem.
However, the tepid nature of the gains that led to the new highs along with the lackluster volume that has accompanied the move up from the March 9, 2009 low doesn’t seem to encourage confidence in the direction. More alarming is the fact that we are not near historical levels of under-valuation in the market in general. The Dow Industrials currently has a dividend yield of 2.48% when the long-term average high yield is around 6%. Also of concern is that the Dow Fair Value is at 6.92 times the dividend yield. This is contrasted with the 1.52x that is normally associated with great buying opportunities.
The former editor of the Wall Street Journal and Dow Theorist William Peter Hamilton once said, “the wish must never be allowed to father the thought.” For this reason, we will take a wait and see approach to the market going forward.  However, until proven otherwise, we are on a march back to Dow 14,164.53, which was set on October 9, 2007. In anticipation of the rise to the old market high, we have illustrated, in the chart below, three upside scenarios for the Dow Industrials.
The first projection (green line) assumes that the Industrials will continue the torrid pace set from March 9, 2009 to January 19, 2010. The likelihood of the index continuing at such a pace is not expected. However, in the book Charles H. Dow: Economist by George W. Bishop, Jr., it is noted that, according to Charles Dow, there are two stages to a bull market in stocks and that the second stage is more bullish than the first stage. This contrasts sharply with Robert Rhea and William Peter Hamilton’s assertion that there are three stages to every bull and bear market. If we are in the transition to the “second and final” stage of this bull run then it is possible for the market to continue on, and possibly exceed, the first trajectory that was previously set. The projected date that the Dow would reach 14,164.53 is November 19, 2010.
The second projection (blue line) is based on the March 9, 2009 to April 9, 2010 action on the Dow Jones Industrials. This pace seems more realistic than the first projection since it assumes a less dramatic increase in the index. To think that the market could continue moving higher as it had in the past would be quite unrealistic. Based on the current trajectory the Dow would reach the old high by January 31, 2011.
Finally, the third projection (black line) is based on the current trend being the mean and the first projection being the high end of the range. The third projection is a mirror of the first. The third trajectory would reach the old high by June 18, 2011.
Although we have a clear bull market confirmation (within the context of a secular bear market) it is necessary to determine where the downside targets should be. According to Dow’s Theory the following are the targets for a subsequent decline:
  • 9513.92
  • 8030.49

In addition to the normal downside targets, there is the prospect that if the Dow falls below the imaginary third projection level (black line), then all bets are off.  From the current Dow Theory confirmation, if the index cannot retains the level of 10,997.53 beyond July 15, 2010, then the market should have a major correction shortly thereafter.
Reaching the old high is all within the context of a normal secular bear market. The tendency is for the market to get to the old high and then quickly wipe out the notion that a new secular bull market is about to begin. This is the nature of a secular bear market.
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Nasdaq 100 Watch List

Posted on April 9, 2010 by | Leave a comment
Below are the Nasdaq 100 companies that are within 20% of the 52-week low. Instead, they are the starting point for doing your research and determining the best company to buy.  Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence.

Symbol Name Trade P/E EPS (ttm) Yield P/B % from Low
GILD Gilead 45.7975 16.2 2.822 0 6.48 10.86%
GENZ Genzyme 52.8 34.3 1.54 0 1.81 12.13%
SRCL Stericycle 54.58 27 2.03 0 5.44 18.76%
QCOM QUALCOMM 42.17 33.8 1.25 1.60% 3.32 18.92%
APOL Apollo Group 63.14 15.8 4 0 7.13 19.61%
RYAAY Ryanair 29.75 N/A - 0 N/A 19.86%
This list is strictly for the purpose of researching whether or not the companies have viable business models or are about to go out of business. These companies are deemed highly speculative unless otherwise noted.
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Dividend Achiever Watch List

Posted on April 9, 2010 by | Leave a comment
At the end of the week, our watch list contains 26 companies. Here is the watch list which ranks current and former Dividend Achievers that are within 20% of the 52-week low for April 9, 2010.

Symbol Name Price % Yr Low P/E EPS Div/Shr Yield Payout Ratio
MON Monsanto Co. 68.85 3.42% 24.78 2.78 1.06 1.54% 38%
DNB Dun & Bradstreet Corp. 74.49 7.80% 12.42 6.00 1.40 1.88% 23%
XOM Exxon Mobil Corp. 68.76 8.18% 17.28 3.98 1.68 2.44% 42%
TMP Tompkins Financial Corp. 37.55 8.38% 12.69 2.96 1.36 3.62% 46%
FPL FPL Group, Inc. 49.71 9.76% 12.53 3.97 2.00 4.02% 50%
WEYS Weyco Group, Inc. 23.31 11.96% 21.00 1.11 0.60 2.57% 54%
BRO Brown & Brown, Inc. 18.30 12.13% 16.94 1.08 0.31 1.69% 29%
FFIN First Financial Bankshares 52.82 13.69% 20.47 2.58 1.36 2.57% 53%
CWT California Water Service 38.08 13.71% 19.53 1.95 1.19 3.13% 61%
T AT&T Inc. 26.44 14.01% 12.48 2.12 1.68 6.35% 79%
LLY Eli Lilly and Co. 36.84 15.20% 9.35 3.94 1.96 5.32% 50%
SHEN Shenandoah Telecom 18.56 15.28% 29.00 0.64 0.32 1.72% 50%
THFF First Financial Corp. 29.24 15.44% 16.90 1.73 0.90 3.08% 52%
UMBF UMB Financial Corp. 42.15 15.99% 19.16 2.20 0.74 1.76% 34%
SFNC Simmons First National 27.74 16.07% 15.94 1.74 0.76 2.74% 44%
WMT Wal-Mart Stores, Inc. 55.07 16.30% 14.88 3.70 1.21 2.20% 33%
WTR Aqua America, Inc. 17.92 16.44% 23.27 0.77 0.58 3.24% 75%
AROW Arrow Financial Corp. 26.77 16.74% 13.45 1.99 1.00 3.74% 50%
PGN Progress Energy Inc. 39.17 16.93% 14.45 2.71 2.48 6.33% 92%
SYBT S.Y. Bancorp, Inc. 23.16 16.97% 19.46 1.19 0.68 2.94% 57%
OTTR Otter Tail Corp. 21.87 17.39% 30.80 0.71 1.19 5.44% 168%
NWN Northwest Natural Gas Co. 46.88 18.44% 16.57 2.83 1.66 3.54% 59%
MLM Martin Marietta Materials 87.51 18.61% 45.82 1.91 1.60 1.83% 84%
HCC HCC Insurance Holdings 27.31 18.64% 8.78 3.11 0.54 1.98% 17%
CTWS Connecticut Water Service 23.18 20.04% 19.48 1.19 0.91 3.93% 76%
SBSI Southside Bancshares, Inc. 20.99 20.70% 7.44 2.82 0.65 3.10% 23%
26 Companies

Watch List Summary 
The best performing stock from last week's list is American State Water (AWR) which rose 7.4%. The worst performing stock is Monsanto (MON) which fell 2.8%. Overall, the Dividend Achiever watch list gained 1% versus the Dow gained of 0.63%.


You may have noticed that this list is full of utility (Electricity, Gas, and Water) companies. Recently, a reader asked for our opinion on FPL Group (FPL). We replied under Research Request and urged anyone interested in investing in utilities carefully examine the sector. Although we are long California Water (CWT), we are not too excited about this sector due to the eventual rise in interest rates. Many people, myself included, may not remember the 70's (I wasn't even born yet) but our studies have shown that undervalue utilities became a bigger bargain when interest rate rose. Companies with dividend yields of 5% quickly became 10% as the price collapsed. The excerpt below was taken from my commentary on Seeking Alpha. 
Utilities got CRUSHED in the 70's when actual inflation came. Take a look at ED which traded at $5 at the end of 1974. Once year later the stock was just north of $2. It didn't reach $5 until end of 1977.AEP is another example. It closed 1974 at $26. It hit a low of $14 toward the end of 1975 and later closed the year at $18. It didn't get truly above $26 level until 1986.CNP is another name that got clobbered in 1973 to 1975.FPL didn't start trading until 1983 which saw the beginning of rate decline. The Fed Fund rate shot up to 12.9 in July 1974, came down and went back up to 14.94 in April 1982.Anyone interested in investing in Utilities, should study what really happen to cost of borrowing for these companies when rate rose.
- Art
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Embracing the Economic "New Normal"

Posted on April 5, 2010 by | 1 comment
According to the Tax Foundation, Americans paid their portion of the Federal tax bill, as measured in number of days out of 365, on April 9th. This was one day later than in 2009. The reason for the reduction in the number of days needed to pay our portion of taxes since 2007 is because of all the stimulus and bailouts that have occurred since the onset of the financial "crisis."
  
If we review the chart on the number of days Americans achieved their "Tax Freedom Day," we find that during years with economic growth we take longer to obtain our freedom. The government sticks it to us when we're making more money. Notice also that our federal budget deficit has gone parabolic for the very same reason that our annual tax bill has gone down.

I've always maintained that this bear market resembles the secular bear period from 1966 to 1982. The chart shows a shocking resemblance between the two periods. In 1968, Tax Freedom Day took place later than the date for the deficit. Likewise, in 1999, freedom occurred after the date for the deficit. After the crossover took place in 1968, our economy hit the high inflation skids thereafter.

For good reason, the 2009 parabolic move in the deficit scares me plenty. If the past is any indication of the future then we're gonna get rampant inflation like never before seen. The irony of this is that after getting slammed in stocks and real estate, most people are seeking safety above all else. The most obvious target for safety is a bank with deposit insurance. Unfortunately, the reformed saver (formerly known as an investor) will get crushed in the coming inflation.
"Markets have risk. So does a savings bank when inflation runs rampant."
Richard Russell. Dow Theory Letters. October 7, 1958. page 2.
What is likely to occur is that the same people who got beaten down in real estate and stocks will get nothing less than clobbered when they are locked in a 6-month certificate of deposit at a local bank. Those with the cash will be reluctant to buy real estate or the "right" stocks. Utility stocks will be the favored choice for "safety" but the unsuspecting will wish they never heard of utility companies as a "safe" investment. Even my favorite Dividend Achievers will be taking it on the chin during high inflation.

My solution to the coming inflation is to embrace it. One way to do this is to read Is Inflation Ending? Are You Ready? This book was written in 1982 by Gary Schilling and Kiril Sokoloff (published in 1983) explaining why the days of double digit inflation were over. This is important because everything that happened after 1983 can easily be verified. In the book, we get insight as to what happens in a deflationary environment which precedes breakneck inflation. In order to understand where we're going we need to know where we came from, the book by Schilling and Sokoloff covers 60% of the high/low inflation equation.

Next, read the book Crisis Investing by Douglas Casey. Casey's book covers all ends of the investment spectrum with a bias towards high inflation environments. While you might not need half of the strategies that are mentioned, Crisis Investing will come in handy when you need a quick reference.

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Posted in Crisis Investing, Doug Casey, Gary Schilling, Is Inflation Ending?, Kiril Sokoloff, Richard Russell

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Research Request: FPL Group (FPL)

Posted on April 4, 2010 by | Leave a comment
The research request that we've received is from Brian out of Austin, Texas who asks what our thoughts on FPL Group (FPL) might be.  According to Value Line Investment Survey, "FPL Group, Inc. is a holding company for Florida Power & Light (FPL), a utility engaged in the generation, transmission, distribution, and sale of electricity to 4.5 mill. customers in a 27,650-sq.-mi. area in eastern & southern Florida. NextEra Energy Resources is a nonregulated power generator with nuclear, gas, & wind ownership."
At the forefront of the concerns for FPL Group (FPL)  is the recent rejection by state regulators for a rate increase.  On January 14, 2010, FPL Group (FPL) was turned down for the requested rate increase of $1 billion in 2010 and $250 million in 2011.  As bad as this seems for FPL Group (FPL) the decline in the stock price seemed to have anticipated the outcome with the peak of the price on December 11, 2009 at $56.25.  After December 11th, the stock of FPL Group (FPL) fell to $51.50 the day before the rate decision came due.  In my estimation, any decline in the price of FPL after the decision was simply reactionary on the part of speculators who were caught on the wrong side of the trade.  FPL fell to its lowest point at $45.57 and has risen steadily since.
According to Dow Theory, FPL has the following upside targets (based on the peak of $72.56 on December 5, 2007 and the decline to $37.08 on October 10, 2008.):
  • $48.90
  • $60.73
  • $72.56
FPL has the following downside targets (based on the February 2, 2000 low at $18.41 to the peak of $72.56):
  • $45.48
  • $36.43
  • $27.42
  • $18.41
Of particular concern to me is the fact that we are in the 5th year of an inflationary cycle.  As noted in the right hand column of our website, inflation seems to have a 50-year full cycle which according to Dewey and Dakin's book Cycles: The Science of Prediction, would have begun in 2005/2006.  It is important to note that Dewey and Dakin's book was published in 1947 and indicated the subsequent peaks and troughs in the inflation rates since.   The impact of this thesis is quite relevant to FPL Group (FPL) and all utility companies since they rely almost exclusively on borrowing to fund their current and future operations.  The higher their borrowing costs the more the impact to the company's earnings.

With the aforementioned interest rate issues in mind, I would like to reference Investment Quality Trends view that FPL Group (FPL) is considered undervalued when the stock has a dividend yield of 9%.   With the current annual dividend of $2, FPL Group (FPL) would be selling for $22.22 if yielding 9%.  If we were to assume that FPL Group (FPL) were to fall between the current yield of 4.10% and 9%, the FPL Group (FPL) would fall to the level of $30 when yielding 6.5%.  These estimates to the downside should be paramount to the consideration of the investment in utilities.  What concerns me the most with utilities is the prospect of a decline similar to the period from 1965 to 1974.  In that period, the yield on the Dow Jones Utility Index went from 3% all the way up to 12% (Source: Weiss, Geraldine, Dividends Don't Lie, Longman, 1988).
 
According to Value Line Investment Survey, FPL normally trades around 1.34 times the per share dividend divided by the "interest rate" (1.34x $2/interest rate). Valueline doesn't tell us by which interest rate we should apply to the company, so I have decided to apply the 30, 20, and 10 year U.S. Treasury rate. The following are the mean prices that FPL would trade at for each interest rate scenario:

  • 30-year rate- $55.71
  • 20-year rate- $57.63
  • 10-year rate- $67.68

Based on the 30 year rate, FPL is selling 14.84% below the historical mean value. I chose the $55.71 value since it was the most conservative figure.

Considering all the issues that are present in an increasing interest rate environment going forward, we're going to take a look backwards and examine the fundamentals of FPL Group (FPL).  According to Morningstar.com, FPL is selling 28.5% below the average P/E over the last 10 years.  In terms of the price-to-book ratio, FPL is selling 29.33% below the 10-year average.  The extremes based on the 10-year average for FPL are that the stock is selling 14% below the average based on a price-to-sales ratio and 57% below the average on a price to cashflow basis over the same period.

Again, my concern with the fundamental data on utilities since 1980 is that it is based on a falling interest rate environment which is highly favorable to borrowers.  The opposite should be true in what I believe lies ahead for interest rates.  If I were to invest in this stock, I would buy, as my limit, only half of my normal position and no more.
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Dividend Achiever Watch List

Posted on April 2, 2010 by | Leave a comment
At the end of the week, our watch list contains 26 companies. Here is the watch list which ranks current and former Dividend Achievers that are within 20% of the 52-week low for April 1, 2010.
 
Symbol Name Price % Yr Low P/E EPS Div/Shr Yield Payout Ratio
TMP Tompkins Financial Corp. 36.52 5.41% 12.34 2.96 1.36 3.72% 46%
XOM Exxon Mobil Corp. 67.61 6.37% 16.99 3.98 1.68 2.48% 42%
MON Monsanto Company 70.83 6.40% 25.48 2.78 1.06 1.50% 38%
DNB Dun & Bradstreet Corp. 74.38 7.64% 12.40 6.00 1.40 1.88% 23%
FPL FPL Group, Inc. 48.84 7.84% 12.30 3.97 2.00 4.10% 50%
BRO Brown & Brown, Inc. 17.73 8.64% 16.42 1.08 0.31 1.75% 29%
UMBF UMB Financial Corp. 40.41 11.20% 18.37 2.20 0.74 1.83% 34%
T AT&T Inc. 26.11 12.59% 12.32 2.12 1.68 6.43% 79%
WEYS Weyco Group, Inc. 23.55 13.11% 21.22 1.11 0.60 2.55% 54%
FFIN First Financial Bankshares, Inc 51.93 13.16% 20.13 2.58 1.36 2.62% 53%
AWR American States Water 35.20 14.21% 21.73 1.62 1.04 2.95% 64%
CWT California Water Service 38.32 14.42% 19.65 1.95 1.19 3.11% 61%
WTR Aqua America, Inc. 17.63 14.55% 22.90 0.77 0.58 3.29% 75%
THFF First Financial Corp. 29.12 14.96% 16.83 1.73 0.90 3.09% 52%
SHEN Shenandoah Telecom 18.59 15.47% 29.05 0.64 0.32 1.72% 50%
SFNC Simmons First National Corp. 27.60 15.48% 15.86 1.74 0.76 2.75% 44%
SYBT S.Y. Bancorp, Inc. 22.88 15.56% 19.23 1.19 0.68 2.97% 57%
LLY Eli Lilly and Company 36.15 16.95% 9.18 3.94 1.96 5.42% 50%
MLM Martin Marietta Materials, Inc. 86.50 17.24% 45.29 1.91 1.60 1.85% 84%
LKFN Lakeland Financial Corp. 19.18 17.31% 15.22 1.26 0.62 3.23% 49%
PGN Progress Energy Inc. 39.74 18.63% 14.66 2.71 2.48 6.24% 92%
NWN Northwest Natural Gas 46.98 18.70% 16.60 2.83 1.66 3.53% 59%
OTTR Otter Tail Corp. 22.18 19.06% 31.24 0.71 1.19 5.37% 168%
PBI Pitney Bowes Inc. 24.45 19.97% 11.99 2.04 1.46 5.97% 72%
MGEE MGE Energy Inc. 35.45 20.50% 16.04 2.21 1.47 4.15% 67%
UGI UGI Corp. 26.72 20.85% 12.09 2.21 0.80 2.99% 36%
26 Companies


Watch List Summary 

The best performing stock from last week's list, is California Water Service (CWT) which rose 4.1%. The worst performing stock is Tompkins Financial Corp. (TMP) which fell 3.3%. Overall, the Dividend Achiever watch list gained 1.2% versus the Dow gained of 0.7%.

New addition to this list is Dun & Bradstreet (DNB) which is a former Dividend Achiever. DNB was removed from this list in 2000 after stopping the dividend payment. They reinstated dividend in March 2007 at $0.25 per share and have been raising that over the past three years. Current payout is at $0.35 which equate to annual increase of 12%. - Art

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Coppock Curve Q & A

Posted on April 1, 2010 by | Leave a comment
A reader asks:
"Isn't it possible to determine good times to sell stocks using the Coppock Curve?"
Touc's reply:
My understanding of the Coppock Curve is that it is strictly for the purpose of giving buy signals. Sell signals are purely coincidental if they occur at all.
Drawing from Mr. Coppock's own words in Barron's October 15, 1962 article, Mr. Coppock states that,"It [Coppock Curve] gives a so-called buy signal."(page 5) Mr. Coppock goes even further to state that, "Because well-timed buying is far more difficult for the nonprofessional investor than timely selling, it is best to think of the curve as a very long-term buying guide. Its formula was devised for that type of use." (page 5,16)

In James Dines' book Technical Analysis (page 377, 1972), there is no mention of the Coppock Curve as being able to provide a sell signal or eminent market slumps. Any mention of the Coppock Curve was with the ability of the Curve to "pinpoint the start of new trends and enable investors to select future market leaders." (page 378)
There seems to be no evidence that would suggest that the Coppock Curve should be used to determine potential declines. Instead, the Curve should only be tested on its ability to accurately call the bottom in a given stock or index.
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Market Checkup: Coppock Curve

Posted on March 31, 2010 by | Leave a comment
It's been quite some time since we made an update to the Coppock Curve. The curve or index moved into positive territory in January 2010. Let me remind you that the Coppock Curve is only a buying indicator and tells us nothing about selling. For an indicator to become bullish, the curve has to be in a negative territory and turning upward. I indicated that the bullish indicator came in May 2009 when the index rose from -386 to -380. Table below shows the March low (2009) up until now.

Date Index
Mar-09 -374.4
Apr-09 -386.0
May-09 -380.5
Jun-09 -376.5
Jul-09 -357.8
Aug-09 -319.1
Sep-09 -265.3
Oct-09 -212.7
Nov-09 -147.3
Dec-09 -61.7
Jan-10 25.1
Feb-10 95.0
Mar-10 168.0

The chart below shows that we are clearly in the positive territory. This leave us with one thing, for the curve to turn negative and reverse for a possible buy signal.

If this curve isn't an indication to sell, then why am I writing about this? Because I believe that it is a great tool for long-term investors and they should be aware of this unique indicator. When the index turned  upward in May 09', many small investors, myself included, were still bearish on the market and ignored this technical indicator. Emotions and anger about the bailout clouded our judgment. As a result, many missed the chance to buy the market via ETFs or mutual funds. Even though I was bearish, I stated in that article "This could be the beginning of a greatest investment opportunity if you look in the right place. I suggest you begin accumulating shares but with caution!"

The good news is that some time in the future, this curve will turn negative again. We'll be more excited when that happens. The bad news is, we just don't know when this will happen. Until then, do your research on the Coppock Curve to see if this indicator can be of any benefit to your investment strategy. We will keep an updated chart on the curve and update you when an opportune time arrives.

Click here for more explanation on the Coppock Curve and here for the calculation method. - Art

Quote of the day:

"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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What Impact Will Apple’s iPhone be on AT&T and Verizon Stock? Technically Speaking, Not Much.

Posted on March 30, 2010 by | Leave a comment
The purpose of this article is to point out the lack of impact the Apple (AAPL) iPhone will have on the share price of both AT&T and Verizon. This article makes no attempt to argue the finer points of the financial gains and loses that are made to each company in terms of revenue, profit margins, net income, etc., etc... As Dow Theorists, we believe that the change in the stock price reflects all current and foreseeable information. For this reason, when we invest, we’re primarily concerned with how all the good and bad news about a company is translated into the movement of the stock price. After all, it is the consistency of the dividend and the appreciation of the stock price that we’re seeking.
In the charts below, I have compared the price performance of AT&T (red line) and Verizon (blue line) and determined what, if any, difference in the change of price occurred before and after the introduction of Apple’s iPhone.
By some accounts, we could say that the rise in AT&T’s stock price before the iPhone was due to the anticipation of the iPhone becoming a part of the stable of products that was being offered (buy the rumor, sell the news). However, the rumor mill really started churning in late 2006, at a time when AT&T had already gained a 22% difference in stock price from the October 2005 low for both (T) and (VZ).
Historically, (T) has typically been the stock to rise and fall by a greater magnitude than (VZ). This means that as the decline from October 2007 took place, it was expected that the decline would greater in (T) and smaller in (VZ). Because the stocks have similar movement in price pattern at approximately the same time, you can do a comparison with any major peak or trough to come to the same conclusion (try it here.)
The take away from this piece should be that if you’re nervous about large moves down, then you should start researching (VZ) to see if it is the right investment for you. On the other hand, if you don’t mind wide swings down with greater potential for larger gains, as compared to Verizon, then AT&T might be the better choice. However, in terms of the impact that the iPhone might have on the prospects of either company, there isn’t much of a difference.
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Nasdaq 100 Watch List

Posted on March 28, 2010 by | Leave a comment

Below are the Nasdaq 100 companies that are within 20% of the 52-week low.

Symbol Name Price P/E EPS (ttm) Yield P/B % from Yr Low
GILD Gilead Sciences 45.34 16.1 2.82 0 6.5 9.76%
GENZ Genzyme Corp. 53 34.4 1.54 0 1.8 12.55%
APOL Apollo Group 61.28 14.7 4.16 0 6.7 16.08%
QCOM QUALCOMM 41.83 33.6 1.246 1.60% 3.3 17.96%
FSLR First Solar, Inc. 116.5 15.5 7.53 0 3.6 18.02%
SRCL Stericycle, Inc. 54.5 26.9 2.03 0 5.5 18.58%

This list is strictly for the purpose of researching whether or not the companies have viable business models or are about to go out of business. These companies are deemed highly speculative unless otherwise noted.

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It Isn’t Easy Being Green

Posted on March 27, 2010 by | Leave a comment

One person that I think small investors of today can learn a lot from is Hetty Green. Mrs. Green, born Henrietta Howland Robinson in 1834, increased her investment holdings from $6 million in 1865 to $100 million, in cash, by 1900. And while the average investor doesn’t have six million dollars to start with, the lesson to be learned is far greater than the amount an individual has to invest.

The goal for this “infamous” investor was “to make and keep 6% every year.” How was this accomplished? Hetty Green never aimed for the “big hit” or large gains in the stock market. Instead, she sought reasonable gains which were secured and then rolled over to “real estate mortgages, government and municipal bonds, and other safe, income-oriented investments.” The money was moved out of the safe investments when the stock market was at extreme panic lows.

There are two points about the preceding paragraph that I feel are important. First, seek reasonable gains or “fair” profits. Never set out to beat the stock market. The market will fail to perform at some point, either individually or as a whole, and that is the opportunity to buy the stocks that you want. As you’ll see in the section About This Site, We only seek to exceed the rate of return on “guaranteed” money while all stock purchases are done after the price has reached an extreme on the downside. Seeking “fair” profits implies that an investor considers selling a stock after achieving the goal of exceeding the return of “guaranteed” money rates.

The second point is that without panics or crashes small investors have little chance of succeeding in the stock market, especially through the use of mutual funds and ETFs. Real wealth in stocks is built on understanding values and then seizing those values, en mass, whenever possible. Most great “speculators” have secured their wealth by investing during panics and with the selection of very few companies, typically 3 or 4. With the government constantly trying to smooth out the business cycle, what ends up happening is a concerted effort to keep the wealth of our nation in the same powerful hands with the guise of protecting the average citizen.

Unfortunately, there was a tremendous price for Hetty Green to pay in order achieve such outstanding gains. Mrs. Green was known to avoid spending money at every turn. As an example, when her son was in need of medical attention on his leg, she concocted her own remedy. Her son later had to have his leg amputated due to the lack of proper medical attention.

After getting married to Ned Green, a well known speculator, Hetty's image didn't improve. In fact, Hetty Green was known as the "Witch of Wall Street." With her black dress and hat, miserly ways along with above average financial success didn't endear Hetty to the male dominated confines of Wall Street. However, her 9.50% after-tax returns certainly couldn't be ignored.

Sources:

  • Fisher, Kenneth L. 100 Minds That Made The Market. Business Classics. 1993.
  • Lewis, Arthur H. The Day They Shook the Plum Tree. Harcourt, Brace & World. 1962.
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Dividend Achiever Watch List

Posted on March 26, 2010 by | Leave a comment
At the end of the week, our watch list contains 27 companies. Here is the watch list which ranks Dividend Achievers that are within 20% of the 52-week low for March 26, 2010.

Symbol Name Price % Yr Low P/E EPS Div/Shr Yield Payout Ratio
XOM Exxon Mobil Corp. 66.54 4.69% 16.73 3.98 1.68 2.52% 42%
FPL FPL Group, Inc. 47.81 5.56% 12.04 3.97 2.00 4.18% 50%
MON Monsanto Company 71.10 6.80% 25.58 2.78 1.06 1.49% 38%
TMP Tompkins Financial Corp. 37.75 8.96% 14.03 2.69 1.36 3.60% 51%
BRO Brown & Brown, Inc. 17.81 9.13% 16.49 1.08 0.31 1.74% 29%
CWT California Water Service 36.81 9.91% 18.88 1.95 1.19 3.23% 61%
AWR American States Water 34.07 10.55% 21.03 1.62 1.04 3.05% 64%
WTR Aqua America, Inc. 17.20 11.76% 22.34 0.77 0.58 3.37% 75%
UMBF UMB Financial Corp. 40.69 11.97% 18.50 2.20 0.74 1.82% 34%
MLM Martin Marietta Materials, Inc. 83.37 13.00% 43.65 1.91 1.60 1.92% 84%
T AT&T Inc. 26.24 13.15% 12.39 2.12 1.68 6.40% 79%
WEYS Weyco Group, Inc. 23.60 13.35% 21.26 1.11 0.60 2.54% 54%
SYBT S.Y. Bancorp, Inc. 22.65 14.39% 16.29 1.39 0.68 3.00% 49%
SFNC Simmons First National Corp. 27.36 14.48% 15.72 1.74 0.76 2.78% 44%
LLY Eli Lilly and Co. 35.42 14.59% 8.99 3.94 1.96 5.53% 50%
LKFN Lakeland Financial Corp. 18.80 14.98% 14.92 1.26 0.62 3.30% 49%
FFIN First Financial Bankshares 51.99 16.05% 20.15 2.58 1.36 2.62% 53%
SHEN Shenandoah Telecom. 18.72 16.27% 29.25 0.64 0.32 1.71% 50%
THFF First Financial Corp. 29.55 16.66% 17.08 1.73 0.90 3.05% 52%
NWN Northwest Natural Gas 46.42 17.28% 16.40 2.83 1.66 3.58% 59%
MGEE MGE Energy Inc. 34.51 17.30% 15.62 2.21 1.47 4.26% 67%
PGN Progress Energy Inc. 39.31 17.34% 14.51 2.71 2.48 6.31% 92%
UGI UGI Corp. 26.08 17.96% 11.80 2.21 0.80 3.07% 36%
NTRS Northern Trust Corp. 55.35 18.47% 17.52 3.16 1.12 2.02% 35%
OTTR Otter Tail Corp. 22.12 18.73% 31.15 0.71 1.19 5.38% 168%
PBI Pitney Bowes Inc. 24.28 19.14% 11.90 2.04 1.46 6.01% 72%
WGL WGL Holdings Inc. 34.50 20.67% 15.33 2.25 1.51 4.38% 67%
27 Companies

Watch List Summary 

The best performing stock from last week's list, is Simmons First National (SFNC) which rose 1.2%. The worst performing stock is Martin Marietta Materials (MLM) which fell 4.6%. Overall, the Dividend Achiever watch list lost 1.2% versus the Dow gained of 1%.
Our team added two companies to our portfolio this week. AT&T (T) and Monsanto (MON) have ex-dividend dates approaching and we feel comfortable enough owning them at this level. In addition to those two, we currently have long position in Exxon (XOM) and California Water (CWT). - Art

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Upcoming Ex-Dividend Dates for Watch List Companies

Posted on March 26, 2010 by | Leave a comment
Below are the approximate ex-dividend dates for companies that appeared on our Dividend Achiever and Nasdaq 100 Watch Lists for the prior week. If you happen to be researching these companies for potential investment, it would be advisable to consider the ex-dividend date prior to possible purchases. Owning the shares of the company that you're interested in before the ex-dividend date entitles you to the upcoming dividend payment. Owning the shares on or after the ex-dividend date means that you would have to wait at least three months before receipt of the next dividend payment.
Please verify the ex-dividend date and payout ratio before committing funds to these stocks. Additionally, do not base your next long or short-term purchase on the dividend payment or yield. Instead, get as much research in as you possibly can before the ex-dividend date "just in case" you're actually interested in buying the stock. 

Of particular note on the list, with an upcoming ex-dividend date, is AT&T (T) with a dividend yield of 6.30% and 13.67% from the 52-week low.  It pains me to say it but the one quarterly dividend payment from AT&T beats most savings and money market accounts.  With (T) selling at 1995 prices and with solid earnings and dividends, this becomes an obvious choice for investment research.  The only consideration is that you've got to accept that (T) might trade in a range for a long while.  AT&T is going ex-dividend in the first week of April.

Name Symbol Pct from Yr Low Ex-Dividend Date
Comcast Corporation CMCSA 41.26% 4/4/2010
Monsanto Company MON 7.44% 4/6/2010
AT&T Inc. T 13.67% 4/6/2010
WGL Holdings Inc WGL 20.60% 4/6/2010
Progress Energy Inc PGN 17.64% 4/7/2010
Lakeland Financial LKFN 16.15% 4/21/2010
Nor'west Natural  NWN 17.94% 4/27/2010
Paychex, Inc. PAYX 32.08% 4/28/2010
Brown & Brown, Inc. BRO 9.93% 5/1/2010
Intel Corporation INTC 54.97% 5/3/2010
Tompkins Financial TMP 9.68% 5/3/2010
California Water Service CWT 9.47% 5/4/2010
Xilinx, Inc. XLNX 41.08% 5/8/2010
Exxon Mobil Corporation XOM 4.92% 5/8/2010
Linear Technology LLTC 38.45% 5/10/2010
American States Water AWR 10.74% 5/10/2010
Eli Lilly and Company LLY 15.85% 5/10/2010
Otter Tail Corporation OTTR 19.43% 5/10/2010
KLA-Tencor Corporation KLAC 59.69% 5/11/2010
Aqua America, Inc. WTR 11.50% 5/11/2010
Microchip Technology MCHP 45.67% 5/16/2010
Maxim Integrated Pro. MXIM 50.81% 5/17/2010
Pitney Bowes Inc. PBI 19.82% 5/17/2010
Activision Blizzard, Inc ATVI 21.83% 5/18/2010
Applied Materials, Inc. AMAT 29.10% 5/22/2010
FPL Group, Inc. FPL 5.70% 5/24/2010
QUALCOMM QCOM 19.04% 5/24/2010
Weyco Group, Inc. WEYS 12.87% 5/25/2010
Martin Marietta Materials MLM 13.89% 5/25/2010
MGE Energy Inc. MGEE 17.78% 5/25/2010
Northern Trust NTRS 19.18% 6/8/2010
UMB Financial UMBF 13.70% 6/9/2010
ADP ADP 33.07% 6/10/2010
Pharmaceutical Product PPDI 27.10% 6/11/2010
Simmons First National SFNC 12.47% 6/11/2010
S.Y. Bancorp, Inc. SYBT 12.68% 6/11/2010
UGI Corporation UGI 17.59% 6/11/2010
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Qualcomm (QCOM) Boosts Forecast

Posted on March 25, 2010 by | Leave a comment
Qualcomm (QCOM) rose as high as 8% today after boosting their forecast. The strangest thing is that it wasn't long ago (1/27/10) that they reaffirmed guidance that was below the street expectation which tanked the stock by 14% on the following day. Then on 2/26/10, our team point to the obvious fact that QCOM and MON should be on your radar after appearing on our daily watch list. Five days after (3/1/10), the company announced a dividend increase of 12% plus a $3 billion stock repurchase program. The stock was at $36.
We reiterated QCOM in the Research Request section of the site. Although the stock is still within 20% of the 52-week low, we'd rather not chase it at this point.

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Dow Theory

Posted on March 23, 2010 by | Leave a comment
On October 16, 2009, I wrote an article on SeekingAlpha.com titled “Stock Market Projections,” where I attempted to predict the next low point for the Dow Industrials. In that article I said:
“After I ran the numbers, the cycle analysis method indicates that from January 24, 2010 to February 15, 2010 is the next expected low.”
Eerily, the Dow Jones Industrial Average has managed to hit a major low on February 8, 2010. This is almost exactly in the middle of the range where, based on cycle analysis, the Industrials were expected to go. At the time it was my assertion that after hitting the low in February 2010 we could expect that the next move upwards would be to the 12,000 level.
The case for the move upward has been bolstered by the fact that, according to Dow Theory, the Industrials and the Transports have exceeded their January 2010 highs based on the closing price of March 18, 2010. However, as the Industrials have exceeded their March 18th closing price the Transports have not followed through so far.  This type of divergence between the two indexes is generally considered to be a non-confirmation.
The great Dow Theorist Richard Russell (Dow Theory Letters) has spoken at length about non-confirmations in the indexes and how to interpret the trend of the market in this context. According to Russell:
"It is a reasonable practice in areas of non-confirmation or divergence to give precedence to the primary direction. Thus, after a rally in a bear market, when one Average refuses to confirm the other on the upside, the strong presumption is that the next direction of the market will be down. More positive proof is provided if the two Averages then retreat below previous minor decline lows. The converse of this is true in a bull market, and many impressive advances have been “tipped-off” in areas where one Average refused to follow (confirm) the other through an important low point."
Richard Russell, Dow Theory Letters, Issue 102, May 2, 1960, page 2. www.dowtheoryletters.com
We would not be totally satisfied with the bull market indication (within a secular bear market) until the Transportation Index is able to go above 4422.50. However, until that time, we would consider this a bull market that is waiting for a confirmation rather than a potential bear market in the making. While we’re still sticking to a projected Dow Industrials of 12,000, the market has seemed to run out of the explosive bursts on the upside that it once had. Despite this concern, we wouldn’t be surprised of the market truly melted up from the current level.
  • The article on Seeking Alpha titled “Stock Market Projections” is here.
  • For better viewing, the chart in the article is here. 

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