LINDQUIST/LEPIC
MARKET LETTER

Editors, Larry E. Lindquist, right and Robert E. Lepic, left,
confer with their Market Analyst, Keeter.


LINDQUIST/LEPIC MARKET LETTER

October 2, 2014 Issue 412

Monthly Market Commentary


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.


How We View The Market


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



ANALYSIS


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