• 16 Jul
    COLM makes great products – but buying their stock right now is risky

    COLM makes great products – but buying their stock right now is risky

    One of the best-performing areas of the economy this year is the Consumer Discretionary sector, which for the year is up more than 12%. About half of that move has come since the beginning of May as this sector has been one that has led the market even as uncertainty has pushed other sectors lower or at least into a mostly sideways pattern over the same period. A lot of that move has been driven by mostly positive economic data showing continued low unemployment with gradually increasing income levels as well as increasing consumer confidence. That’s been good news for stocks like Columbia Sportswear Company (COLM). The stock is up 26% year-to-date, and more than 64% over the past year.

    Depending on your perspective, seeing a stock staging such a strong upward trend over the past year can prompt a couple of different ideas. If you use the long-term trend as a primary indication of trade direction, the stock’s current strength should naturally make you think about placing a bullish trade. If you follow a value-based or contrarian approach, the strength of the long-term upward trend should lead you to wonder if the best opportunity has already passed, and if in fact the downside risk right now outweighs any remaining upside potential.

    Based on the company’s most recent earnings report, COLM’s fundamentals are all healthy and seem to indicate not only that business has been growing, but also that it should continue to do so for the foreseeable future. The company’s business is very cyclic in nature, owing to the fact that it so closely tied consumer preferences and trends, as well as to the ebb and flow of seasonal shifts in those trends; even so, over the past year the company has shown strength in just about every important, measurable area. The company itself, however raised a few red flags in its discussion in their report of risks. The fact is that the company manufactures all of its products abroad, using short-term contracts with producers worldwide. Management specifically mentioned concerns about the U.K.’s pending withdrawal from the European Union as well as trade tensions between the U.S. and its trading partners as geopolitical issues that stand to impact them in a negative way.



    Fundamental and Value Profile

    Columbia Sportswear Company is an apparel and footwear company. The Company designs, sources, markets and distributes outdoor lifestyle apparel, footwear, accessories and equipment under the Columbia, Mountain Hardwear, Sorel, prAna and other brands. Its geographic segments are the United States, Latin America and Asia Pacific (LAAP), Europe, Middle East and Africa (EMEA), and Canada. The Company develops and manages its merchandise in categories, including apparel, accessories and equipment, and footwear. It distributes its products through a mix of wholesale distribution channels, its own direct-to-consumer channels (retail stores and e-commerce), independent distributors and licensees. As of December 31, 2016, its products were sold in approximately 90 countries. In 59 of those countries, it sells to independent distributors to whom it has granted distribution rights. Contract manufacturers located outside the United States manufacture all of its products. COLM has a current market cap of $6.5 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased impressively, at almost 51%, while sales increased more modestly, at about  12%. Growing earnings faster than sales is difficult, and generally isn’t sustainable in the long term, but it is also a mark of management’s ability to maximize its business operations and manage costs. It should be noted that the company’s Net Income is only about 5% of Revenue, which indicates that they operate with a very narrow margin profile.
    • Free Cash Flow: COLM’s Free Cash Flow is healthy at a little over $278 million. Their available cash and liquid assets has increased over the last two quarter from about $450 million to more than $808 million in the last quarter.
    • Debt to Equity: COLM has a debt/equity ratio of 0; they have little to no long-term debt.
    • Dividend: COLM pays an annual dividend of $.88 per share. At the stock’s current price, that translates to a dividend yield of 0.95%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for COLM is $24.16 per share. At the stock’s current price, that translates to a Price/Book Ratio of 3.81.  That’s a bit higher than I usually like to see, but the average for the Textiles, Apparel & Luxury Goods industry is 4.4, while the historical average for COLM is 2.5. While the industry average suggests the stock could still offer some more upside, in this case I think the historical average is a stronger indicator. The stock is significantly overvalued, since a drop to par with the average would put the stock a little below $62 per share.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The 2-year chart here clearly shows the stock’s impressive run since June of last year; the red diagonal line traces the stock’s trend from that point to its recent high at around $94 per share. The stock has been hovering near to, but slightly below that high level for the past month, an indication of consolidation and uncertainty about how much upside the stock has left. In and of itself, that isn’t an indication that the stock is sure to reverse, of course, since the stock could pick up momentum and push higher yet again. However, the red horizontal lines on the right side of the chart, which trace the stock’s current Fibonacci retracement levels, are a good indication of how much technical risk there is right now. If the stock breaks below its current support at around $90, it would likely not find meaningful support before dropping to as low as $78 or $77 per share. If economic conditions begin to deteriorate, an even deeper decline isn’t out of the questions, with the $62 forecast from the stock’s historical Price/Book ratio – a price level the stock last saw in November of last year – clearly within reach.
    • Near-term Keys: For the stock to maintain its longer-term upward trend in the short-term, it would have to break above $95 will considerable buying volume to provide momentum and strength. Far more likely right now is a decline to somewhere between $78 and $80, where the stock could then test the strength of its long-term trend and possibly set up a new bullish trade from a solid retracement pattern. A break below $90 would indicate that test is imminent; it could also provide a short-term, momentum-based bearish trade set up for shorting the stock or working with put options.


  • 13 Jul
    HOG could be a good value play even with a trade war

    HOG could be a good value play even with a trade war

    At the end of May, steel and aluminum tariffs on the European Union, Mexico and Canada were imposed by the Trump administration amid a whirlwind of criticism, coming from all three countries and from just about every mainstream news media outlet as well. In the long run, the actual effect of these tariffs, and others levied against China remains to be seen, but as investors, it’s important to understand that no matter what the long-term outcome will be, good or bad, in the short term the markets will inevitably interpret any kind of conflict in trade as a negative thing. That interpretation manifests in daily market activity as uncertainty and volatility, and so it isn’t surprising that many of the industries that either produce steel and aluminum, or that rely on the material for their finished products, have been under some pressure.

    Harley Davidson, Inc. (HOG) is one of the stocks that has really been under pressure throughout the year, and the tension over tariffs certainly hasn’t helped matters. One of just a few worldwide brands that can truly be considered “an American icon,” the stock opened the year at around $52 and climbed as high as about $56 before dropping back to a low around $40 at the beginning of May. The imposition of steel and aluminum tariffs actually gave the stock a temporary boost, lifting it to about $46 in late June before it dropped back to its current level a little shy of $43.

    Over the last week or so, the company has come under fire from Trump himself by deciding to move its international manufacturing operations out of the U.S. Management has even attributed at least a portion of the decision to tariffs, since most of the countries targeted by the U.S. have responded in kind. Offshoring their international manufacturing should give the company a way to avoid export tariffs to key markets like Europe, but it has also drawn ire from the President, since the move threatens U.S. manufacturing jobs (although the company has not indicated any existing jobs would be lost). The negative press is one of the prime reasons the stock has dropped back near to its 52-week lows, but that drop also creates a pretty interesting opportunity for value-oriented investors. I think the fact the company is willing to think, and act proactively to address issues that it believes will impact its ability to do business is a positive in the long run. Call this an “anti-Trump” play if you want, but if the trade war doesn’t get resolved in what businesses feel is a reasonable period of time, and it really does starts to effect corporate growth, we may see other companies following HOG’s lead.



    Fundamental and Value Profile

    Harley-Davidson, Inc. is the parent company for the groups of companies doing business as Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The Company operates in two segments: the Motorcycles & Related Products (Motorcycles) and the Financial Services. The Motorcycles segment consists of HDMC, which designs, manufactures and sells at wholesale on-road Harley-Davidson motorcycles, as well as motorcycle parts, accessories, general merchandise and related services. The Company manufactures and sells at wholesale cruiser and touring motorcycles. The Financial Services segment consists of HDFS, which provides wholesale and retail financing and insurance-related programs to the Harley-Davidson dealers and their retail customers. HDFS is engaged in the business of financing and servicing wholesale inventory receivables and retail consumer loans for the purchase of Harley-Davidson motorcycles. HOG has a current market cap of $7.1 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased 18%, while sales increased only about 2.65%. Over the last quarter, both numbers are quite a bit more encouraging, with earnings more than doubling versus the quarter prior, and sales increasing more than 30%. Also, over the trailing twelve months, Net Income was a little less than 10% of Revenue, while over the last quarter it increased to a little over 11%.
    • Free Cash Flow: HOG’s Free Cash Flow is healthy at about $826 million. Their available cash and liquid assets also increased over the last quarter by more than 10%.
    • Debt to Equity: HOG has a debt/equity ratio of 2.06. While this number decreased in the last quarter, HOG remains one of the most highly leveraged companies in its industry. Their balance sheet indicates that operating profits are more than sufficient to service their debt.
    • Dividend: HOG pays an annual dividend of $1.48 per share. At the stock’s current price, that translates to a dividend yield of 3.46%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for HOG is $11.85 per share. At the stock’s current price, that translates to a Price/Book Ratio of 3.6.  That’s a bit higher than I usually like to see, but the average for the Automobiles industry is 4.6, while the historical average for HOG is 4.5. A move to par with its historical average would put HOG a little above $53 per share, almost 25% higher than its current price.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The red diagonal line traces the stock’s decline from its 52-week high at nearly $56 per share to its downward trend low in early May around $39. The stock picked up bullish momentum from that point to rally to a short-term high at around $46 per share before dropping back to around $40 in late June. The stock appears to have been building some positive momentum from that point. The horizontal red lines on the right side of the chart mark Fibonacci retracement lines based on the highlighted downward trend; the first line, around $46 is the 38.2% retracement level, which usually acts as a pretty significant inflection point. If the stock can break above resistance at that level, I expect to see the stock rally near to the 61.8% retracement line around $50. A break above $46 would also mark a reversal of the downward trend and should give the stock room to rally to the $53 to $54 level. Immediate support is around $40, and a break below that point could see the stock drop into the mid-$30 range, which is where the next likely support from historical pivots points lies.
    • Near-term Keys: If you’re looking for a short-term bullish bump, wait to see if the stock can break above $46 per share. A strong break, with good buying volume would act as a good signal to buy the stock or work with call options. If you’re willing to work with a long-term investment, the fundamentals and value proposition are strong enough to warrant taking a position immediately. If you prefer to follow the direction of the current downward trend and work with the bearish side, wait to see if the stock drops below $40. A move to $39 would be a good indication to short the stock or start working with put options.


  • 12 Jul
    IRBT is setting up for a bullish pop

    IRBT is setting up for a bullish pop

    Despite the uncertainty that has dominated the market for most of the year, its bullish long-term trend remains in place and has continued to provide strong support to mute any drawdown. As of this writing, the S&P 500 Index looks set to push above short-term resistance and could start testing the all-time highs it set back at the beginning of the year. That should be a positive indication for stocks in general, and even while trade war risk persists, there remain interesting opportunities to be had.

    iRobot Corp (IRBT) could be one that is setting up for a good bullish trade right now. The stock’s short-term trend is up about 45% since the beginning of May, with room yet to move up another 15% if its current momentum holds. This is a small-cap stock in the Household Durables industry that is a bit of a niche play; its products won’t appeal to every consumer, but they have a strong, building customer base, and while their focus is primarily geared toward consumer robot use, it includes forward-thinking technologies like mapping, navigation, mobility and artificial intelligence. If you’re a geek like me, you can’t really walk into a Best Buy store without at least checking out the section that includes IRBT’s products, which also means that sooner or later you’re likely to buy one of your own.


    IRBT is another stock in the Household Durables industry that could also provide some protection in the event of a trade war. The company markets their products across the globe, and so incurs some financial risk; however, as of the last quarter, international sales accounted for only about 11% of the company’s total sales. They also manufacture their products entirely within the U.S., relying on international distributors to market and sell the products abroad. What financial risk exists from their international exposure is related primarily to foreign exchange rates above all else. Their last quarterly report indicates they actively use foreign currency forward contracts and swap to hedge and minimize this risk.

    Fundamental and Value Profile

    iRobot Corporation is a consumer robot company, which is engaged in designing and building robots. The Company’s portfolio of solutions features various technologies for the connected home and various concepts in mapping, navigation, mobility and artificial intelligence. The Company sells various products that are designed for use at home. Its consumer products focus on both indoor and outdoor cleaning applications. The Company offers multiple Roomba floor vacuuming robots. Roomba’s design allows it to clean under kick boards, beds and other furniture. It offers the Braava family of automatic floor mopping robots designed for hard surface floors. The Roomba 600 series robots offer a three-stage cleaning system. The iRobot HOME Application helps users to choose cleaning options for their home. Its Mirra Pool Cleaning Robot is used to clean residential pools. The Company’s trademarks include Scooba, ViPR, NorthStar, Create, iAdapt, Aware, Home Base, Looj, Braava, vSLAM and Virtual Wall. IRBT has a current market cap of $2.3 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased almost 27%, while sales increased nearly 29%. These are healthy numbers that indicate their business is growing aggressively. The company’s margins are a bit narrow at around 5% for the past year, although in the last quarter this number did increase to almost 10%.
    • Free Cash Flow: IRBT’s Free Cash Flow is healthy, and since they have no long-term debt, their operating profits can be directed almost completely to facilitate growth and continued innovation.
    • Debt to Equity: IRBT has a debt/equity ratio of .0, which as already mentioned means they have no long-term debt. Any short-term needs can be covered by their operating profits, along with more than $100 million in cash and liquid assets.
    • Dividend: IRBT does not pay an annual dividend.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for IRBT is $17.69 per share. At the stock’s current price, that translates to a Price/Book Ratio of 4.58. The average for the Household Durables industry is 5.9, while the historical average for IRBT is only 3.3. Comparing the current Price/Book ratio to its historical average means the stock is overvalued, however in this case the industry average is also constructive. A move to par with the industry average would translate to a stock price of more than $104 dollar per share, which is near an all-time high which the stock reached temporarily a year ago.


    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The red diagonal line traces the stock’s decline from its all-time high at nearly $110 per share to its downward trend low in early February around $56. The stock finally picked up enough bullish momentum to sustain a strong upward trend beginning in May, driving from that low point to its current price. Since that time, the stock has moved in a nice stair-step pattern, with a recent pullback to support at around $75 before bouncing higher to its current price. The green horizontal line marks previous pivot points that I think could act as an important test of the upward trend’s longer-term strength if its current bullish momentum tapers off; an upward bounce from that level should provide a good catalyst to keep the stock moving higher. The red horizontal lines on the right side of chart mark Fibonacci retracement levels of the downward trend that could provide resistance to a sustained move higher. If the stock breaks above the most immediate resistance around $83, for example it should easily test its short-term pivot high above $90, with a longer-term target around $103 possible from there.
    • Near-term Keys: Watch the $83 level; a break above that resistance should provide a good signal to enter a bullish trade, either by buying the stock outright or by working with call options. If the stock begins to retrace from its current price, pay attention to support around $72. A bounce higher from that level could also provide a good bullish trading set up at a lower price point. If the stock breaks below $72, on the other hand, the stock’s mostly downward longer-term trend would be reasserting itself, and the stock would likely see little support before dropping back into the $56 to $60 level to retest its 52-weeks lows. That could translate to a decent opportunity if you like working with put options or with short sales.


  • 11 Jul
    AMAT is about to break down despite great fundamentals

    AMAT is about to break down despite great fundamentals

    For the last week or so, I’ve noticed that the market seems to be trying to shrug worries about trade tensions aside and focus on other matters, like continued strength in the U.S. economy as measured by things like unemployment and payroll figures, along with corporate earnings that generally seem to keep coming in with healthy growth. This morning, however, trade is once again rearing its ugly head, as overnight the Trump administration published a fresh list of proposed tariffs on an estimated $200 billion of Chinese goods. Not surprisingly, China is promising to retaliate and accusing the U.S. of using bullying tactics to try to get their way. I’ve also heard some rumbling over the last couple of weeks about the flattening yield curve and the chances it could invert, which a lot of experts would read as a leading indicator of a looming recession. I’m not so sure that a flattening curve right now is as problematic as some think. There are some interesting global factors at play right now, including negative interest rates in Germany and Japan that make short-term U.S. Treasuries more attractive worldwide than what we’ve seen happen historically. On the other hand, an extended, long-term trade conflict with China and our other biggest trade neighbors could be a catalyst that drives up costs, not only in the U.S. but across the globe to the point that recession becomes inevitable.

    With respect to China, the Semiconductor industry has seen a lot of negative price pressure for the last few months, because so much of the fabrication and production of semiconductor products comes from that country. The Trump administration’s tariffs against China imports are intended to protect U.S. technology and intellectual property (or so they want the world to believe) but at the same time many of them penalize American companies that use Chinese manufacturers to produce their finished product. That puts the entire sector at risk, which includes companies like Applied Materials, Inc. (AMAT), who provide manufacturing equipment, services and software to the sector.



    AMAT is down about 28% since early March, when President Trump first started rattling the tariff saber. That’s a big drop over that period that has forced the stock into an intermediate-term downward trend. The strength and momentum of that trend appears to be approaching an inflection point right now, and assuming the U.S. and China won’t stop pointing fingers and actually find a way to come an agreement anytime soon, I think there is a real chance that AMAT could break down to levels it hasn’t seen since late 2016. This is a risk that belies the company’s overall fundamental strength and strong financial position; in the long run, I think that strength will set up an interesting value proposition at some point down the road. For now, however, the downside risk from those external, geopolitical factors far outweighs any long-term opportunity.

    Fundamental and Value Profile

    Applied Materials, Inc. provides manufacturing equipment, services and software to the global semiconductor, display and related industries. The Company’s segments are Semiconductor Systems, which includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging, and ion implantation; Applied Global Services, which provides integrated solutions to optimize equipment and fab performance and productivity; Display and Adjacent Markets, which includes products for manufacturing liquid crystal displays, organic light-emitting diodes, upgrades and roll-to-roll Web coating systems and other display technologies for televisions, personal computers, smart phones and other consumer-oriented devices, and Corporate and Other segment, which includes revenues from products, as well as costs of products sold for fabricating solar photovoltaic cells and modules, and certain operating expenses. AMAT has a current market cap of $45.5 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased 54%, while sales increased almost 29%. Growing earnings faster than sales is difficult to do, and generally isn’t sustainable in the long-term; however it is also a good indication of a management’s ability to maximize their business operations. The company’s Net Income versus Revenue was almost 25% in the last quarter, which indicates their operating margins are very healthy.
    • Free Cash Flow: AMAT’s Free Cash Flow is strong, at more than $3.6 billion. While this number declined from about $4 billion in its most recent quarter, it has increased consistently since late 2015 when it was a little under $1 billion.
    • Debt to Equity: AMAT has a debt/equity ratio of .75, which is manageable despite its increase from .62 in the last quarter. The company has more than $5.3 billion in cash and liquid assets, which means they they have plenty of liquidity, against $5.3 billion in total long-term debt.
    • Dividend: AMAT pays an annual dividend of $.80 per share, which at its current price translates to a dividend yield of about 1.77%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for AMAT is $6.99 per share. At the stock’s current price, that translates to a Price/Book Ratio of 6.45. The average for the Insurance industry is 5.3, while the historical average for AMAT is 4.06. That is a  pretty good indication the stock remains overvalued right now despite its decline since March. A move to par with its historical average would put the stock a little above $28 per share, which is actually below the technical bottom I’m forecasting if the stock’s current downward trend continues to assert itself.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The chart above covers the last two and a half years because I want to give you an idea of how far AMAT has come; the impressive rise from around $15 that started at the beginning of 2016 to a high above $60 is remarkable by any measure. The stock’s terrific run was driven in no small part by the company’s fundamental strength, and those fundamentals remain solid, so there is an argument to be made that the stock should remain higher than it where it started. Given that the stock has dropped almost 30% in just four months despite its fundamental strength, however also provides some context for how much downside risk I think there is in the stock from external forces. The stock is sitting on a strong support level around $45 right now, which I’m highlighting with the blue horizontal line. If it drops below that point, its next likely support level would be around $40 (yellow horizontal line). Another break below that level could easily see the stock drop all the way to around $30, which would mark a 33% drop from the stock’s current level, and a 50% total drop from its March highs. Bullish upside is also limited right now by the bearish strength of the intermediate trend, shown by the green moving average line. The stock would have to break above $50 with strong upward momentum and buying volume before any reversal of the intermediate trend could be confirmed.
    • Near-term Keys: Watch the $45 support level. A break below that point is a strong indication the current downward trend could resume its momentum; the best trading probabilities in that case would come from bearish trades, such as buying put options or short selling the stock. If the stock starts to reverse higher from $45, be patient and wait for the stock to break above $50 before considering any kind of bullish trade.


  • 10 Jul
    PFG could be a winner if Financial stocks come back into favor

    PFG could be a winner if Financial stocks come back into favor

    Since the beginning of the year, the Financial sector has lagged the rest of the market; as measured by the SPDR Financial Select Sector Fund (XLF), as of this writing it is down about 10% from its late January highs, and while the broad market appears to be recovering some bullish momentum this week, financial stocks remain mostly lower, constrained by the downward trend they’ve been following for the last six months. While interest rates have been rising for the last year or so, those gradual increases have kept rates near historically low levels, a fact that puts pressure on a variety of asset management offerings from savings accounts to certificates of deposit, bonds, and interest-bearing insurance products like annuities. I believe that fact has played a role in the sector’s underperformance. Insurance companies have also suffered not only from narrow margins resulting from low interest rates, but also from tepid revenues; that is a trend that could change, but is mostly expected to do so gradually.

    The best opportunities in the Financial sector for investors, I think come from companies that can offer a balanced mix of products between asset management (including investment, savings and retirement) services and insurance services. Principal Financial Group (PFG) is a good example of one of those kinds of companies. The other fact is that a lot of stocks, like PFG in the Insurance industry have really been beaten down over the last six months, far more than the -10% I referred to at the beginning of this post. PFG, for example is down about 38% from its late January high, and that is a level that I think is starting to offer a pretty nice value proposition. Let’s take a more detailed look.



    Fundamental and Value Profile

    Principal Financial Group, Inc. is an investment management company. The Company offers a range of financial products and services, including retirement, asset management and insurance. Its segments include Retirement and Income Solutions; Principal Global Investors, Principal International; U.S. Insurance Solutions, and Corporate. The Company offers a portfolio of products and services for retirement savings and retirement income. The Company’s Principal Global Investors segment manages assets for investors around the world. The Company offers pension accumulation products and services, mutual funds, asset management, income annuities and life insurance accumulation products. The Company’s U.S. Insurance Solutions segment provides group and individual insurance solutions. It focuses on small and medium-sized businesses, providing a range of retirement and employee benefit solutions, and individual insurance solutions to meet the needs of the business owners and their employees. PFG has a current market cap of $15.7 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased about 10%, while sales decreased almost 6%. Growing earnings faster than sales is difficult to do, and generally isn’t sustainable in the long-term; however it is also a good indication of a management’s ability to maximize their business operations. The company’s Net Income versus Revenue was almost 14% in the last quarter, which indicates their margins are pretty healthy.
    • Free Cash Flow: PFG’s Free Cash Flow is strong, at about $4.2 billion. This number has improved from a little under $3.5 billion a year ago.
    • Debt to Equity: PFG has a debt/equity ratio of .26, which is conservative. The company has more than $4.9 billion in cash and liquid assets, which means they they have plenty of liquidity, against only about $3.2 billion in total long-term debt. Cash and liquid assets have improved over the past year from about $3.3 billion.
    • Dividend: PFG pays an annual dividend of $2.08 per share, which at its current price translates to a dividend yield of about 3.8%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for PFG is $42.79 per share. At the stock’s current price, that translates to a Price/Book Ratio of 1.27. The average for the Insurance industry is 1.2, while the historical average for PFG is 1.54. That might not sound like much of a discount, but it actually indicates the stock is a little more than 17% below the $66 level that a rally to par with its historical average would provide. That’s pretty attractive and offers a nice opportunity from a value-oriented perspective if the Financial sector comes back into favor as I’ve seen some analysts suggest should happen soon. If the stock’s downward trend continues, that proposition is only likely to improve.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

    • Current Price Action/Trends and Pivots: The red diagonal line on the chart highlights the stock’s downward trend since January, and also provides the range needed to calculate the Fibonacci retracement lines shown on the right side of the chart. The stock’s gradual, but consistent stair-step pattern since February is a good indication of the downward trend’s strength. It’s also pretty easy to the stock’s recent bullish strength as it has rebounded from a trend low at around $52 per share to its current price level. The downward trend will remain in place until and only if the stock can break the $61 level marked by the 38.2% retracement line. A push above that point would likely mark and important reversal point. If the stock breaks below its current support around $52, its next most likely support level would be around $49; continued bearish momentum beyond that point could push the stock as low as $45.
    • Near-term Keys: If the stock’s current bullish momentum holds, and the stock can break above immediate resistance around $56, the stock should have little trouble rallying near to $61 per share; that could be a decent opportunity for a bullish short-term trade by buying the stock outright or using call options. A drop below $52 could act as a good signal for a bearish trade using put options or by shorting the stock.


  • 09 Jul
    SLB is down 15% over the last six months – should you buy?

    SLB is down 15% over the last six months – should you buy?

    Over the last month or so, a lot of Energy stocks have been under a bit of pressure. The spread between West Texas Intermediate (WTI) and Brent crude widened to more than $10 per barrel early in June, and that was a big factor that put a lot of U.S. oil stocks – including the companies that service the oil industry – under some strain. Schlumberger NV (SLB) is one that has struggled to maintain any kind of bullish momentum since late January, when it temporarily moved above $80 per share. As of this writing, the stock is down more than 15% from that 52-week high, and appears to be rebounding a bit from a low support point. Does that mean it could be a good time to jump into one of the largest oilfield services companies in the world?

    There are some pretty reasonable economic arguments to be made for taking a position in a company like SLB. Most analysts, including the U.S. Energy Information Agency (EIA) expect oil demand to remain high through the rest of the year, and the U.S. economy in general is projected to keep seeing healthy growth for the foreseeable future. That is usually a positive for energy demand in general and oil specifically. The “rising tide lifts all boats” logic would certainly suggest that these are bullish conditions for energy and energy-related stocks in general, and most specifically for the largest players in their respective markets. Of course, crude and natural gas prices can be volatile, which also means that an unexpected shift in those commodities would be likely to hit stocks like SLB pretty hard. 

    That shift could be a result of a number of broader economic concerns; in mid-2014, oil was at all-time highs, but slowing demand in major economies like China, and emerging economies like Russia, India and Brazil all contributed to a rapid, steep decline that saw WTI drop from around $105 per barrel to about $44 by the end of the year. In the current market, trade tensions between the U.S. and its largest trade partners, along with U.S. sanctions against Iran are contributing to uncertainty that is keeping prices above $70 per barrel. The effect in the long run of trade tensions remains unclear, and markets in general abhor anything that stands in the way of business-as-usual. That could be the largest immediate factor preventing SLB or any other energy-related stock from seeing a big near-term push higher.



    Fundamental and Value Profile

    Schlumberger N.V. provides technology for reservoir characterization, drilling, production and processing to the oil and gas industry. The Company’s segments include Reservoir Characterization Group, Drilling Group, Production Group and Cameron Group. The Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. The Drilling Group consists of the principal technologies involved in the drilling and positioning of oil and gas wells. The Production Group consists of the principal technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, Completions, Artificial Lift, Integrated Production Services (IPS) and Schlumberger Production Management (SPM). The Cameron Group consists of the principal technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities. SLB has a current market cap of $92.8 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings and sales both increased, with earnings increasing more than 50%, while sales increased about 13.5%. Growing earnings faster than sales is difficult to do, and generally isn’t sustainable in the long-term; however it is also a good indication of a management’s ability to maximize their business operations. It is also noteworthy that the company’s Net Income is nearly 25% of revenue, which means their profit margins are very healthy right now.
    • Free Cash Flow: SLB’s Free Cash Flow is healthy, at about $3.4 billion, but has been declining since late 2015 from a high above $7.5 billion. In addition, Net Income for the company is currently negative, which is an indication they are spending more money than they are bringing in and relying on their cash reserves to make up the difference.
    • Debt to Equity: SLB has a debt/equity ratio of .36, which is conservative. The company has more than $4.1 billion in cash and liquid assets, which means they should be able to keep servicing their debt for the time being without problems. Since the first quarter of 2016, cash and equivalents have declined by more than 70%. This is a big red flag that to me suggests the company is dealing with significant operational problems that have yet to be addressed.
    • Dividend: SLB pays an annual dividend of $2.00 per share, which at its current price translates to a dividend yield of about 2.92%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for SLB is $26.95 per share. At the stock’s current price, that translates to a Price/Book Ratio of 2.53. The average for the Energy Equipment & Services industry is 2.1, while the historical average for SLB is 2.66. Together, these tell me the stock is fairly valued right now, with little to support an argument for a higher price. Another warning sign to me is the fact that the stock is currently trading more than 17% above its historical Price/Cash Flow ratio. That number signals a drop could push the stock as low as $54 at minimum.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The stock has rebounded from a recent pivot low around $64 (highlighted using the blue, dashed line) in late June and managed to build some bullish momentum to get to its current level around $68.50 per share. It is approaching what I think will be pretty significant resistance between $69.50 and $70 per share, which I’ve highlighted using the red, dashed horizontal line.  If the stock’s current bullish momentum is strong enough to push above that resistance, it would likely find its next support around $75, shown with the yellow, dashed horizontal line. I expect these levels to continue to work against allowing the stock to establish a clear upward trend over anything longer than a short-term period of time.
    • Near-term Keys: If you don’t mind working a short-term trade to capture quick profits, a push above $70 per share could be a good signal to enter a bullish trade, either by buying the stock outright or using call options, with an eye on $75 per share as an exit point. On the other, a break below support around $64 should be a major warning sign for any bullish positions you might have on this stock. It could also be a decent signal to short the stock or work with a bearish trade using put options.


    By Thomas Moore Energy Sector Investiv Daily Oil
  • 06 Jul
    The trend is a friend for AEO

    The trend is a friend for AEO

    A popular maxim among technical traders states that “the trend is your friend.” The logic is pretty simple; when you’re trying to decide which way to work with a stock (bearish or bullish), you should use the stock’s trend as your guide. If you’re thinking about taking a position that could cover 3 month’s of time or more, the smart way to apply the rule is use the stock’s long-term trend for that reference.

    This approach works against the mindset of value-oriented and contrarian investors, because it opens up your investment universe to stocks that are already trading at high multiples of the price ratios more conservative methods use. The advantage that it offers, however is pretty simple: just because a stock is already trading at a high level does not automatically mean it is due to reverse and move down. It is also true that in order for a stock to establish a new high, it has to break above its latest high. American Eagle Outfitters, Inc. (AEO) is a great example of a stock that is the midst of a strong, long-term upward trend, and that could be setting up for another strong push even higher.

    The trend for AEO is following a very similar track to the Consumer Discretionary sector in general, which is where this Specialty Retail stock fits. The entire sector has pulled back just a bit from recent peaks over the last week or so, and it is true that it could drop a little further. The strength of that longer trend, however means that the entire sector, and AEO specifically, is more likely in the near future to turn back to the upside and offer investors an opportunity to ride the stock a little further.



    Fundamental and Value Profile

    American Eagle Outfitters, Inc. (AEO Inc.) is a multi-brand specialty retailer. The Company offers a range of apparel and accessories for men and women under the American Eagle Outfitters Brand (AEO Brand), and intimates, apparel and personal care products for women under the Aerie brand. AEO Inc. operates stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom. As of January 28, 2017, the Company operated over 1,000 retail stores and online at ae.com and aerie.com in the United States and internationally. Its company-owned retail stores are located in shopping malls, lifestyle centers and street locations in the United States, Canada, Mexico, China, Hong Kong and the United Kingdom. Its other brands include Tailgate and Todd Snyder New York. Tailgate is an apparel brand with a college town store concept. Todd Snyder New York is a menswear brand. As of January 28, 2017, the AEO brand operated 943 stores and online at www.ae.com. AEO has a current market cap of $4.2 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings and sales both increased, with earnings growing almost 44%, while sales increased about 8%. Growing earnings faster than sales is difficult to do, and generally isn’t sustainable in the long-term; however it is also a good indication of a management’s ability to maximize their business operations.
    • Free Cash Flow: AEO’s Free Cash Flow is healthy, at a little over $235 million. That number has increased in each of the past three quarters.
    • Debt to Equity: AEO has a debt/equity ratio of 0, which means they carry little to no debt. That fact translates to a much lower level of financial risk for the company than most of its competitors carry. The company has good liquidity, with a little over $309 million in total cash and liquid assets. This also represents a significant improvement over the last year, when cash was around just $190 million.
    • Dividend: AEO pays an annual dividend of $.55 per share, which at its current price translates to a dividend yield of about 2.33%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for AEO is $6.84 per share. At the stock’s current price, that translates to a Price/Book Ratio of 3.44. The historical average for the stock is only 2.5, suggesting the stock is overvalued by almost 50%, but the average for the Specialty Retail industry is 6.8, which is a reflection of current market conditions, as investors have consistently shown a willingness to price stocks in this industry at high multiples when the opportunity seems right. A target price of $46 per share, which is where the stock would be at par with the industry average, is probably not realistic, considering that its price has never exceeded $32 per share; it does, however suggest that a target somewhere in the $30 to $31 range under current conditions is probably not unreasonable.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The diagonal blue line traces the stock’s upward trend over the past year, while the dashed red and green lines highlight the narrow trading range the stock has held between $23 and $25 for the past month or so. Don’t be surprised if the stock pushes below its immediate support at $23 to test the long-term trend line’s support somewhere around $21.
    • Near-term Keys: If the stock can find a new surge of bullish momentum, it could break above the stock’s current high, and resistance around $25. That could give way to another surge to the $28 to $30 range. If the stock retraces back to around $21 and then pivots back to the upside, an aggressive trader would be tempted to bet on a resumption of the upward trend, but the higher probability trade would be to wait for a solid break above $25. The stock could break that upward trend line support, and if it goes even further to drop below pivot low support around $19, its next low could be found in the $13 to $14 range.


  • 05 Jul
    A declining trend in crude inventories could be a good thing for MRO

    A declining trend in crude inventories could be a good thing for MRO

    As little as a month ago, a rare thing happened in the energy market. The spread between the prices of U.S. crude (as measured by West Texas Intermediate, or WTI prices) and OPEC-driven crude (as measured by Brent prices), which normally hovers in a range between $3 and $5 per barrel, increased to about $10 per barrel. WTI crude sank to as low as about $65 per barrel while Brent hovered in a range around $75. Digging into news reports and analysis, it seemed that the difference could be attributed in large part not to U.S. production, which was and remains highs, but rather to problems in the infrastructure (namely, pipelines and storage facilities) that delivers raw product to market. Those problems are focused primarily on the emerging, oil-rich Permian Basin that spans western Texas and eastern New Mexico, where production is being hampered by ongoing infrastructure projects that aren’t scheduled to be completed until sometime in 2020. In the meantime, that limited delivery capacity worked against high production levels to over-inflate inventory levels, which then put severe pressure on crude prices from that region in early June by as much as $11 per barrel lower than standard WTI.

    Over the last couple of weeks, the WTI-Brent spread has returned to mostly normal levels, despite the ongoing capacity issues that linger in the Permian Basin. As of this writing, WTI crude is a bit above $73, with Brent slightly below $78 per barrel. Part of the shift, I think can be attributed to explorers and drillers with the ability to work not only in the Permian, but also in the more established, but still prolific Eagle Ford and Bakken areas. These are areas not only with excellent drilling capability but also plenty of capacity available to get product to market. Marathon Oil Corporation (MRO) is one of the largest exploration and production companies in the Energy sector, with major resources in, and the largest portion of their year-over-year production rise coming from the Eagle Ford and Bakken areas. Since the U.S. Energy Information Administration (EIA) predicts global crude demand will grow to 1.4 million barrels per day through the rest of the year. Most analysts expect the U.S. economy will continue to grow at a healthy pace as well, which should further support crude demand. That bodes well for oil prices, and so for stocks like MRO.



    Fundamental and Value Profile

    Marathon Oil Corporation is an exploration and production (E&P) company. The Company operates through two segments: United States E&P and International E&P. The United States E&P segment explores for, produces and markets crude oil and condensate, natural gas liquids (NGLs) and natural gas in the United States. The International E&P segment explores for, produces and markets crude oil and condensate, NGLs and natural gas outside of the United States, and produces and markets products manufactured from natural gas, such as liquefied natural gas (LNG) and methanol, in Equatorial Guinea (E.G.). MRO has a current market cap of $17.7 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings and sales both increased, with earnings more than tripling, while sales increased about 61%. Growing earnings faster than sales is difficult to do, and generally isn’t sustainable in the long-term; however it is also a good indication of a management’s ability to maximize their business operations. It is also noteworthy that the company’s Net Income is nearly 25% of revenue, which means their profit margins are very healthy right now.
    • Free Cash Flow: MRO’s Free Cash Flow is very strong, at almost $3 billion. That number has increased since the beginning of 2016, which roughly corresponds with the point where oil prices stabilized after dropping strongly through the last half of 2014 and all of 2015.
    • Debt to Equity: MRO has a debt/equity ratio of .46, which is conservative. Their balance sheet indicates operating profits are more than sufficient to service their debt, with good liquidity to provide additional financial support and flexibility.
    • Dividend: MRO pays an annual dividend of $.20 per share, which at its current price translates to a dividend yield of about 1%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for MRO is $14.16 per share. At the stock’s current price, that translates to a Price/Book Ratio of 1.47. The average for the Oil, Gas & Consumable Fuels industry is 2.2, while the historical average for MRO is .9. If you work from the historical average, the stock is overvalued right now; however I also take into account the reality this average is skewed by the effect of the collapse of oil prices in mid-2014, from a high around $105 per barrel to a low at the beginning of 2016 at around $30. Energy stocks in general struggled to recover from that 70%-plus drop until late 2017. More appropriate in this case could be the industry average; by this measure the stock’s long-term target price could easily be in the $31 range.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The stock has been holding in a pretty narrow range between $20 and $22 per share since late May, and is currently in the middle of that range. The stock has built a solid upward trend dating back to August of last year. The stock’s current level is the highest it has seen since mid-2015.
    • Near-term Keys: If the stock can find a new surge of bullish momentum, it could push as high as $25 in the near term, based on previous pivot levels seen in early 2015. That kind of move would reconfirm the stock’s long-term bullish trend, which should make the $28 to $30 level attainable over a longer period of time. A break below $20, however would probably push the stock somewhere between $17 and $18 per share to test the long-term trend’s overall strength.


    By Thomas Moore Energy Sector Investiv Daily Oil
  • 04 Jul
    Is TSN a good defensive investment?

    Is TSN a good defensive investment?

    When markets become volatile, it usually means that investors are becoming increasingly uncertain and nervous. Uncertainty can come from all kinds of different things – concerns about inflation, wage growth, central bank monetary policy, earnings trends, and geopolitical events. For most of the last three months, most of the uncertainty in the market has revolved around the spectre of trade war between the U.S. and its biggest trading partners. That fear is raising its ugly head once more this week as new tariffs from the U.S. against China are set to take effect on July 6. Besides those tariffs, there are also looming duties against Canada and Mexico along with the steel and aluminum tariffs against the European Union and other trade allies. At the same time the U.S. will begin imposing duties on $34 billion worth of Chinese imports on Friday, Beijing is set to respond in kind with tariffs on a range of products including soybeans, seafood and crude oil.

    When economic concerns increase, investors often start to look for investments that are defensive in nature; that is, they’ll usually start moving money into less volatile, more “secure” assets like Treasury bonds and T-bills, or into stocks that they think should be less cyclical in nature and so have less risk than other stocks. Food companies, including Packaged Foods, which is the industry that Tyson Foods, Inc. (TSN) sits in, often fits into that description. While the stock is down since the latter part of 2017 from a high at around $85 per share to its current price around $67, it has also been holding its value pretty well since the beginning of May, when trade war rumors were really beginning to heat up. Does that mean that TSN, whose sales outside of the U.S. accounted for only about 12% of their total sales in 2017, could be a good stock to hold? Let’s take a look.


    Fundamental and Value Profile

    Tyson Foods, Inc. is a food company, which is engaged in offering chicken, beef and pork, as well as prepared foods. The Company offers food products under Tyson, Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright, Aidells and State Fair brands. The Company operates through four segments: Chicken, Beef, Pork and Prepared Foods. It operates a vertically integrated chicken production process, which consists of breeding stock, contract growers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through its subsidiary, Cobb-Vantress, Inc. (Cobb), the Company is engaged in supplying poultry breeding stock across the world. It produces a range of fresh, frozen and refrigerated food products. Its products are marketed and sold by its sales staff to grocery retailers, grocery wholesalers, meat distributors, warehouse club stores and military commissaries, among others. TSN has a current market cap of $24.4 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings and sales both increased, with earnings growing at almost 26%, while sales increased about 7.5%. Growing earnings faster than sales is difficult to do, and generally isn’t sustainable in the long-term; however it is also a good indication of a management’s ability to maximize their business operations.
    • Free Cash Flow: TSN’ Free Cash Flow is healthy, at almost $1.6 billion. That number has increased modestly over the past year, but is about 20% lower since the beginning of 2017.
    • Debt to Equity: TSN has a debt/equity ratio of .73, which is pretty conservative. Their balance sheet indicates operating profits are more than sufficient to service their debt.
    • Dividend: TSN pays an annual dividend of $1.20 per share, which at its current price translates to a dividend yield of 1.79%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for TSN is $33.03 per share. At the stock’s current price, that translates to a Price/Book Ratio of 2.0. Ratios closer to 1 are usually preferred from a value-oriented standpoint, however higher multiples aren’t that unusual, especially in certain industries. The average for the Packages Foods industry is 1.7, while the historical average for TSN is 2.0. This implies the stock is fairly valued, without a great deal of upside. On the other hand, the stock’s P/E ratio is currently 38% below its historical average, which many investors will take as a positive valuation sign.


    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The diagonal red line outlines the stock’s downward trend beginning in December of last year. The stock hit this line in mid-June and reversed lower, but to this point has failed to establish a new, lower pivot low below the dashed blue line I’ve drawn to illustrate the stock’s current support level. Assuming the stock continues to hold above this level, it could begin to draw bullish momentum to push back up to its nearest resistance, which should be around $72 per share (around the yellow dashed line). TThe stock has been holding in this general range since April, when trade fears began to emerge.
    • Near-term Keys: With the stock currently holding around support at about $66, there could be an opportunity for short-term swing traders to take a bullish position using call options or by buying the stock outright if the stock starts to move higher. Look for volume on up days to increase compared to volume on down days, with the price moving above $68.50 per share. On the other hand, if the stock drops below $66, the downward trend will be reconfirmed, with the next most likely support level sitting anywhere between $57 and $60. A break below $66 could be used as a signal to short the stock or to start working put options.


  • 03 Jul
    Want to limit trade war risk? Check out SCS

    Want to limit trade war risk? Check out SCS

    New Trump-imposed tariffs on China, Mexica and Canada are set to take effect at the end of this week, with retaliatory tariffs from those countries on the U.S. scheduled at the same time. The hand-wringing from politicians, talking heads and business experts continues to dominate the headlines, and I expect that the longer it continues, the more the broad market is going to have a hard time finding any really strong bullish momentum. Whether or not that translates to anything approximating a bear market also remains to be seen, no matter what the naysayers claim. Most economists and business executives, on both sides of the argument, do agree that in the long-term a trade war affects all sides negatively. I’ve even heard a few recently refer to an extended trade war as “mutually assured destruction” that will ultimately force all of the countries involved to eventually work out some kind of agreement. How soon will that happen is anybody’s guess, of course, so for the time being expect uncertainty and speculation to keep dominating the headlines and the news wires.

    As an investor, you can use the fact that a lot of companies that could, or will be directly affected by tariffs are likely to see their stocks underperform. In some cases, stocks currently at or near high levels could be pushed much, much lower, and that could create some nice value-oriented opportunities to pay attention to. As a contrarian-minded investor, I like that idea quite a bit, and so I’m watching a lot of those stocks pretty closely. Another smart thing you can do is to try to identify stocks whose actual exposure is likely to be more limited. Steelcase Inc. (SCS) is a stock that has been in business since 1912, but whose small-cap status means you’ve probably never heard of them. Despite that fact, SCS is the world’s largest maker of office furniture and office furniture systems. This is a company with a very good fundamental profile and what I think looks like a great value profile. At its current price, I also think that it represents a low-risk option if you’re looking for a way to invest in a stock that could provide some good long-term growth potential even as the U.S. keeps wrangling with its global trading partners.



    Fundamental and Value Profile

    Steelcase Inc. provides an integrated portfolio of furniture settings, user-centered technologies and interior architectural products. The Company’s segments include Americas, EMEA and Other Category. The Company’s furniture portfolio includes panel-based and freestanding furniture systems and complementary products, such as storage, tables and ergonomic worktools. Its seating products include task chairs, which are ergonomic seating that can be used in collaborative or casual settings and specialty seating for specific vertical markets, such as healthcare and education. Its technology solutions support group collaboration by integrating furniture and technology. Its interior architectural products include full and partial height walls and doors. It also offers services, which include workplace strategy consulting, lease origination services, furniture and asset management and hosted spaces. Its family of brands includes Steelcase, Coalesse, Designtex, PolyVision and Turnstone. SCS has a current market cap of $1.2 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings have declined while sales increased slightly. Most of the earnings decline was attributed in their last quarterly report to increased commodity costs in the U.S. while most of the increase in sales came from the EMEA (Europe, Middle East, Africa) region, with the greatest portion of overseas growth coming from Germany and the U.K. Revenues from EMEA operations totaled about 18.2% of the company’s total revenues, while the Asia Pacific region contributes less than 15%. The company cites Brexit uncertainty as a risk to its EMEA sales growth. Tariffs on steel and aluminum imports to the U.S. could actually benefit SCS as Canada and China provide most of the international competition in their industry.
    • Free Cash Flow: SCS’ Free Cash Flow is pretty cyclical, and declined almost 50% over the last quarter, but remains generally healthy, with almost $135 million in cash and liquid assets on their balance sheet.
      Debt to Equity: SCS has a debt/equity ratio of .36, which is pretty conservative. Their operating profits are adequate to service their debt, with good liquidity from cash to provide additional stability in this area if necessary.
      Dividend: SCS pays an annual dividend of $.54 per share, which at its current price translates to a dividend yield of 3.89%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for SCS is $6.93 per share. At the stock’s current price, that translates to a Price/Book Ratio of 2.0. Ratios closer to 1 are usually preferred from a value-oriented standpoint, however higher multiples aren’t that unusual, especially in certain industries. The average for the Office Services & Supplies industry is 1.8, while the historical average for SCS is 2.7. I usually prefer the historical average as a measuring stick, which provides a long-term target price of $18.71. That’s 35% higher than the stock’s current price and would put the stock in the neighborhood of its 2-year high price.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

    • Current Price Action/Trends and Pivots: The stock is hovering near to its 2-year low price and appears to be holding solid support a little above $13 per share. Since October of last year, the stock has traded within a roughly $2 range, with resistance around $15.50 and support as already mentioned around $13. The stock’s highest level is around $18 per share, just a little below the long-term target price the value analysis I referred to in the last section provides. The stock’s all-time high is around $20 and was last reached in late 2015.
    • Near-term Keys: With the stock currently pivoting higher off of support around $13, and resistance likely around $15.50, there is some room for short-term traders to speculate on a bullish move of about $2 in the short-term. That could be a good swing trade using call options or buying the stock outright. If you’re willing to work a longer-term viewpoint, the $18 range is a reasonable level to work with as well. If the stock breaks its support around $13, it should find additional support around $12 per share. Downside risk in either the short-term or the long-term appears to be pretty low, which also means trading opportunities on the bearish side for this stock provide a very low probability of success.


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