LINDQUIST/LEPIC MARKET LETTER
October 2, 2014 Issue 412
After the March 2009 lows, money invested in the four stock markets rallied to reach
new high levels in February 2011. A correction followed and the levels fell to August
2011 lows. Investor sentiment then improved. Then market investments rose to
reach all-time highs by mid-September 2014. Recently there has been a retreat of
2.4%.
STOCK MARKET ACTIVITY SYNOPSIS |
Price Multiple Statuses : Evaluations are mixed. See Status Table on Page 6. |
Market Activity : Money invested reached new highs in 2007. See page 2. |
Market Trend : Money invested rose from the March 2009 Lows. |
Investor Sentiment : Investors and Advisors are Bearish. |
Probable Price Gain : Value Line Industrial Composite +5.2%. |
AVERAGE CHANGES IN STOCK MARKET TRENDS
Market Phase |
Money Invested |
Stock Price |
Time Period |
Change |
+142.2% avg. |
+103.4% avg. |
3/09/09 lows to 2/18/11 highs |
Recent Change |
+32.8% avg. |
+25.8% avg. |
Highs in 2011 to 9/26/14 |
STOCK MARKET ACTION
Money invested fell to new lows on March 9, 2009. The March lows were followed
by a rally to 2011 highs. Investment then generally rose an average of +32.8%
by 9/26/14. Changes by stock group are as follows: NYSE (+29.6%), AMEX (-10.5%), NASDAQ (+73.1%)
and DJI (+39.1%).
Prices fell to new lows on March 9, 2009 . Prices then advanced to February 18th 2011 highs.
By 9/26/14, average prices rose by an average of +25.8%. Price changes by stock groups are as
follows: NYSE (+9.6%), AMEX (+5.8%), NASDAQ (+54.5%), DJI (+32.9%).
Institutional activity became distributive on September 25, 2014. Quarterly earnings of 52% of
1982 companies reporting during the 21 trading days ending August 29, 2014 were higher this
quarter versus the same quarter last year. Predicted level of stock price volatility (VIX) is raising
slightly. Corporate insider activity is becoming less bearish.
We remain in a long-term Bull Market. We believe the March 2009 lows have been the low
point in the longer-term market cycle. The past twelve month US market had an over-all
rally. We believe this rally has peaked, with stocks currently trending down. Buy depressed
stocks selectively, and continue to take profits. The stock markets in the rest of the world are
Bearish. The long term uptrend in corporate earnings is modest. Per share earnings are rising in part
due to share buy backs.
Stock Participation (1) reached a new low on March 9, 2009. The rise from the low to the level at
the end of September 2014 is +83%. The cumulative sum peaked in August 2014 at 84%.
Net Investor Demand (2) reached a new low on March 9, 2009. The rise from the low to the level
at the end of September 2014 is +232%. The cumulative sum of the net volumes peaked
at +232% in Septmber 2014.
(1) Stock Participation. Net number of stocks with daily price changes. Cumulative daily number of advances less
declines.
(2) Net Investor Demand. Net demand for stock shares. Cumulative daily advancing less declining volumes
In 2007, money invested reached new highs in all four markets. The 2007 new high
in AMAX remains as all time high. By September 2014, NYSE, NASDAQ and DJI reached all-time highs.
RECOMMENDATIONS
We remain in a recovery phase of a recession with high unemployment and relatively
low consumer spending. The recent action on the upside in the US market has been in the large-cap,
dividend paying companies. We are nearing the end of this recovery phase, with a choppy
market. The stock market is at least somewhat getting used to high unemployment
and a low inflation rate in labor costs. Inflation in oil, food, and hard assets will spur the economy,
but hurt the some stock and all bond markets. We would still avoid large bond positions.
The stocks that we like best are metals, food and energy producers. These include food and
energy distribution companies, and other economic improvement stocks.
We would avoid most retail stores (except food), home loan companies, insurance, mortgage brokers,
and bond funds. We still have uncertain future interest rates even with the low levels in short
term rates by the Federal Reserve. The greatest risks on the longer-term are large bond positions.
STOCK-OF-THE-MONTH
The Stock-of-the-Month for October 2014 is General Electric Co. This NYSE listed stock
(Symbol GE) is a recommended buy at $25.20 per share.
General Electric is one of the largest industrial companies in the world. We also believe it to be
one of the best managed and diversified investment packages in the world. General Electric was
one of the original picks in the Dow Jones Industrial Average more than 100 years ago and is the
only company of that group that remains in that average today. The company can and does
manufacture many of the large components and systems of current high tech industries.
For example, they are the world’s biggest and best producer of jet engines for aircraft and the
world’s premier producer of water desalinization plants. They are also a maker of railroad engines.
The company is a player in many industrial related fields such as making high-tech medical devices,
and providing finance for industrial projects. The company is in more than 100 different business
areas. More than half of the company revenues come from other than domestic USA sources. The
company has more than 300,000 employees and 500,000 shareholders.
We believe that part of our model portfolio should contain companies that produce energy or provide
means to distribute that energy. General Electric can and will be a major player in the overhaul
of the current electrical grids in the world and will be big in the conversion of fossil fuel driven
equipment to electrically driven devices. The return on equity per year has ranged between +10%
and +15% for the past five years. They are friendly to shareholders with a record of raising the
dividend each year, They also buy back stock to support the market price. The stock price has
remained in the $24 to $25 range during the current downturn.
This stock has traded in the range of $6 to $26 per share over the past 5 years and is currently at
the top of the price range. This is a stock with low risk, that should have above average return
over the next decade. Our short term target price for the next two years is $35 per share and our three
year target is $50. This is a large-cap stock that we feel is undervalued
CORE STOCK MANAGED PORTFOLIO
Our core portfolio was down -6.6% during the past month, up +8.6%, in
the past twelve months, and up +945.8%, since inception on 2/15/91.
We recommend the purchase of 1000 shares of General Electric at $25.20
per share. We recommend the sale of 3000 shares of BTH and the sale of
1000 shares of ADM. Increase cash to $212157 (41% of portfolio).
UNITS |
Company |
Average Price($) |
Initial Value($) |
Current Price($) |
Value($) |
Target Price($) |
3000 |
Alcoa |
9.50 |
28500 |
$15.14 |
45420 |
18 |
1000 |
Abbott Labs. |
38.65 |
38650 |
$41.13 |
41130 |
55 |
1000 |
Barrick Gold |
18.20 |
18200 |
$14.62 |
14616 |
30 |
1000 |
Canada ETF |
30.63 |
30630 |
$30.17 |
30170 |
50 |
2000 |
Cliffs Natural |
15.75 |
31500 |
$9.53 |
19060 |
40 |
1000 |
Corn ETF |
24.50 |
24500 |
$22.83 |
22835 |
50 |
1000 |
General Elect. |
25.20 |
25200 |
$25.20 |
25200 |
50 |
2000 |
India ETF |
16.60 |
33200 |
$21.52 |
43040 |
30 |
1000 |
Nabors Ind. |
17.45 |
17450 |
$20.91 |
20910 |
35 |
1000 |
Wisdom Tree |
10.95 |
10950 |
$11.13 |
11130 |
20 |
1000 |
Sysco Corp. |
35.19 |
35195 |
$37.23 |
37228 |
55
|
CASH |
|
|
-$267775 |
|
$212157 |
|
Totals |
|
|
$50,000 |
|
$522896 |
|
Our core portfolio was down -6.6% in the past month, with 11 out of 12
positions down. The short-term prospects for equity investments still
have a high level of risk. Maintain large cash positions.
Most small-cap stock funds are falling. Defer any new buying until the
overall trend is up.
COMMENTS ON PREVIOUS STOCK-OF-THE-MONTH RECOMMENDATIONS
We recommend that all Archer Daniels and Blyth Inc be sold.
Date 7Selected |
Stock |
Symbol |
Price Recommend |
Current or Last Price |
% Change |
Sold /Open |
10/2/11 |
Alcoa |
AA |
9.60 |
8.62 |
-10.2% |
5/3/13 |
11/2/11 |
TransCanad |
TRP |
41.25 |
45.78 |
+10.9% |
6/1/13 |
12/5/11 |
Silver Trust |
SLV |
31.25 |
31.38 |
+0.4% |
4/2/12 |
1/2/12 |
Dow Chem. |
DOW |
28.80 |
31.06 |
+7.9% |
6/1/12 |
2/1/12 |
Agrium |
AGU |
82.00 |
103.46 |
+26.2% |
10/1/12 |
3/2/12 |
Disney |
DIS |
42.30 |
81.57 |
+92.8% |
4/1/14 |
4/2/12 |
Safeway |
SWY |
20.40 |
18.15 |
-11.0% |
7/1/12 |
5/1/12 |
Pengrowth |
PGH |
9.00 |
6.74 |
-25.1% |
10/1/12 |
6/1/12 |
Nabors |
NBR |
13.00 |
15.32 |
+17.8% |
5/3/13 |
7/1/12 |
Denbury |
DNR |
15.00 |
17.51 |
+16.7% |
3/1/13 |
8/1/12 |
Terex |
TEX |
20.00 |
31.93 |
+59.7% |
3/1/13 |
9/1/12 |
Titanium |
TIE |
12.00 |
16.55 |
+37.9% |
12/3/12 |
10/1/12 |
Hewlett Pac |
HPQ |
17.10 |
23.31 |
+51.8% |
4/3/13 |
11/11/12 |
Emerge ETF |
EEM |
41.00 |
44.51 |
+8.6% |
2/3/13 |
12/3/12 |
Gold ETF |
GLD |
166.00 |
142.09 |
-14.4% |
5/3/13 |
1/2/13 |
Mexico ETF |
EWW |
72.00 |
67.65 |
-6.1% |
9/1/13 |
2/3/13 |
Silver ETF |
SLV |
30.80 |
21.08 |
-31.6% |
11/1/13 |
3/4/13 |
Boyd Game |
BYD |
7.39 |
12.75 |
+72.5% |
6/1/13 |
4/3/13 |
Archer Dan. |
ADM |
33.69 |
50.89 |
+51.1% |
Sell |
5/3/13 |
Nash-Sparton |
SPTN |
17.18 |
21.61 |
+25.8% |
5/2/14 |
6/1/13 |
Sysco Sys. |
SYY |
35.19 |
37.23 |
+5.8% |
Open |
7/1/13 |
Rio Tinto |
RIO |
41.50 |
53.84 |
+29.7% |
12/4/13 |
8/1/13 |
Gen. Elect. |
GE |
24.65 |
25.87 |
+4.9% |
4/1/14 |
9/4/13 |
Barrick Gold |
ABX |
18.91 |
17.40 |
-8.0% |
5/2/14 |
10/4/13 |
Nabors |
NBR |
17.45 |
20.91 |
+19.8% |
Open |
11/1/13 |
Alcoa |
AA |
9.50 |
15.14 |
+59.4% |
Open |
12/4/13 |
Vanguard REIT |
VNQ |
65.63 |
74.72 |
+13.3% |
8/2/14 |
1/2/14 |
Abbott Labs |
ABT |
38.65 |
41.13 |
+6.4% |
Open |
2/8/14 |
Cisco |
CSCO |
22.67 |
23.10 |
+1.9% |
4/1/14 |
3/1/14 |
India ETF |
EPI |
16.60 |
21.52 |
+29.6% |
Open |
4/1/14 |
Blyth, Inc. |
BTH |
10.72 |
7.85 |
-16.4% |
Sell |
5/2/14 |
Canada ETF |
EWC |
30.63 |
30.17 |
-1.5% |
Open |
6/1/14 |
Ormat Tech. |
ORA |
29.35 |
25.53 |
-13.0% |
8/2/14 |
7/2/14 |
Cliff Res. |
CLF |
15.75 |
9.53 |
-39.5% |
Open |
8/2/14 |
Barrick Gold |
ABX |
18.20 |
14.62 |
-19.7% |
Open |
9/4/14 |
Corn ETF |
CORN |
24.50 |
22.83 |
-6.8& |
Open |
|
36 Months |
|
Winners |
Losers |
Total |
%Winners |
|
Closed Out |
|
17 |
10 |
27 |
63 |
|
Still Open |
|
5 |
4 |
9 |
56 |
|
Totals |
|
22 |
14 |
36 |
61 |
SPECIAL FEATURES SECTION
The Value Line estimated average price gain for over 900 industrial stocks, is a rise of about +33% by
2016. Price outliers are stocks whose price to present worth (discounted future earnings) ratio is
outside the central area under the distribution curve. Present status of a group of 4000 stocks:
1090 stocks are over-priced outliers and about 1520 stocks are near fair evaluation.
See Stock Group data on the last page.
The annual earnings of 52% of reporting companies rose during August 2014, compared with 64%
in the prior month. Stock buy-backs and dividend increases stimulate stock purchases, but may
postpone capital expenditures.
MONEY INVESTED IN MAJOR MARKET STOCKS
Investment Levels NYSE SUMS NASDAQ SUMS DJI SUMS AMEX SUMS(#) TIME PERIOD
Peaks, All-Time 17.5 2007 HIGH
Peak, All-Time 41.4 424.3 377.1 2014 HIGHS
Trough 16.6 81.8 83.1 14.6 2008-2009 LOWS
Current 39.0 411.9 372.3 15.3 9/26/2014
Down from Peak -5.9% -2.9% -1.3% -12.6% 9/26/2014
# SUMS are quantitative measures proportional to dollars invested.
SPIDERS IN THE RASPBERRY PATCH AND OTHER ETFs
The raspberry patch has been a feature of our market letter for more than twenty
years, where negative or Bearish ideas have been presented. In 1997, we introduced
the concept of trading SPY units either long or short in a feature called Spider Watch.
Starting on June 1, 2005, we are combining the two concepts into a new managed
portfolio, which will hold the best positions, either long or short out of a family of 30
Exchange Traded Funds.
Market Letter Spider Patch Review |
10/2/2014 |
|
|
|
|
|
||||
ETF |
Long or Short |
UNITS |
Initial Price |
Initial Value |
Open or Close Date |
Current Price 10/2/14 |
Current Value |
Value Change |
Change |
|
|
|
|
|
|
|
|
|
|
|
|
EPI |
LONG |
3000 |
16.19 |
48570 |
10/4/3013 |
21.52 |
64560 |
15990 |
+32.922% |
|
EWC |
LONG |
2000 |
30.63 |
61260 |
5/2/2014 |
30.17 |
60340 |
-920 |
- 1.502% |
|
IIF |
LONG |
3000 |
17.33 |
51990 |
12/6/2013 |
24.50 |
73500 |
21510 |
+41.373% |
|
CASH |
|
|
|
|
|
|
34336 |
|
|
|
TOTAL |
|
|
|
50,000 |
|
|
232736 |
182736 |
+365.472% |
|
ACTION |
9/4/2014
|
Hold IIF,EPI,EWC |
|
|
CASH
|
34336
|
|
|
In our October review of 30 ETFs, we found two to be in a short term up trend, twenty-six to
be in a downtrend, and two to be essentially flat or uncertain. This indicates that the world outlook is
now Bearish. Our ETF portfolio has increased at an annual rate of +14.9% since inception on 6/1/05.
Hold EPI, IIF and EWC.
STATUS OF STOCK GROUPS
Stock Market Statistic & Stock Group |
Status of Stock Groups |
Calculation Basis for Stock Group Status |
Earnings Ratio Value Line Industrial Composite
|
Projected 5% Under-price |
Earnings Estimate (12/31/13) Divided By Earnings (12/31/12) |
Stock Group: 4000 Stocks At Price: 1520 Stocks Over Price Outliers: 1090 Stocks |
At Present 37% At-Price 26%Over-Price |
Number Stocks in Group Divided by Total Number of Stocks |
Price-to-Present Worth More than 4000 stocks
|
19% Over Price
|
Present Price Divided by Discounted Future Worth |
Price-to-Earnings Ratio Adj. (2) Value Line – 1700 stocks S & P 500 stocks DJI stocks-Future EPS |
Vs Mid-Range 29%Over-price 29%Over-price 14% Over-price |
Present Adjusted P/E Ratio Versus Past Mid-Range (1) Adj. P/E Ratio |
(1) THE MID-RANGE STOCK GROUP P/E RATIO IS THE BASIS FOR DETERMINING
WHETHER THE PRESENT STOCK GROUP IS UNDER PRICED OR OVER PRICED.
THE P/E RATIO STATUS FOR A STOCK GROUP LOCATES THE RELATIVE POSITION OF ITS
PRESENT P/E RATIO WITHIN ITS HISTORIC LONG-TERM RANGE.
(1) P/E RATIO THAT IS TOLERATED BY INVESTORS VARIES AS INVESTOR EXPECTATIONS
CHANGE FOR A STOCK GROUP. EXTREME OPTIMISM LEADS TO A P/E MAXIMUM AND
EXTREME PESSIMISM TO A P/E MINIMUM. VALUES BETWEEN THE TWO EXTREMES ARE THE
P/E RANGE.
(2) RAW P/E RATIOS ARE ADJUSTED BY INCORPORATING ONLY THE
PREVAILING DIVIDEND AND BOND YIELDS, GROWTH RATES OF EARNINGS
AND THE EXPECTED OUTLOOK FOR THE ECONOMY.
WE USE AN IMPORTANT FEW OF MANY POSSIBLE MARKET STATISTICS.
THE RESULTS ARE ROUGH STATUS ESTIMATES.
THE STATUS DOES NOT PREDICT THE ONSET OF SHORT-TERM CHANGES IN PRICE.
IT IS NOT THE INTENTION OF THIS PUBLICATION TO STATE THAT THE USE OF
ANY CHARTS, INDICES OR TECHNICAL OR FUNDAMENTAL ANALYSIS WILL
GUARANTEE PROFITS. EVERY EFFORT IS MADE TO CAREFULLY REPORT, IN
THIS PUBLICATION, INFORMATION RECEIVED FROM OTHER SOURCES, BUT WE
CANNOT GUARANTEE ITS ACCURACY, NOR COMPLETENESS, BEYOND REASONABLE
LIMITS. PRINCIPALS OF THE MARKET LETTER MAY NOW, OR HAVE
IN THE FUTURE, POSITIONS IN STOCKS AND COMMODITIES MENTIONED HEREIN.
LINDQUIST/LEPIC MARKET LETTER
OWNED AND PUBLISHED BY THE FOLLOWING EDITORS:
LARRY E. LINDQUIST, ROBERT E. LEPIC, AND MEL FENSON
FOR INFORMATION CALL 303-759-8471 OR 303-751-2174
OCTOBER 2, 2014