- $47.12 (50% principal)
We can expect that a bear market rally would bring the stock price at least to the $37.08 level. However, we should never forget the downside risks this stock is likely to face. My expectations of the downside are based on the earnings falling by 50% which would not impact the dividend at all. Yet, a decline of earnings should bring a decline in the price of the stock. It is safest for us to assume that the price would fall at least half of the most recent low of $17.01. If you're willing to accept a decline of 62% then this is a great speculation (as opposed to investment) in a quality dividend paying stock. According to MergentOnline, HP has increased the dividend for 31 years in a row.
Some would argue that I should highlight the relevance of peak oil, future inflation due to the government stimulus, increased aggregate demand, and other assorted factors that affect oil. While these matters are important the reality is that the markets rule the day. What I do know about inflation is based on the chart below. I pulled from BigCharts.com the price movement of Helmerich and Payne, Coure D'Alene (NYSE:CDE), Agnico-Eagle (NYSE:AEM) and the Dow Jones Industrial Average from the period of 1973 to 1983.
click to enlarge
Notice how HP was able to beat out the traditional favorites during inflation like Agnico-Eagle, a gold mining company. Also notice how HP hammered the best precious metal bet on inflation, silver, as represented by CDE. As expected, the Dow Jones Industrial Average was a non factor as an investment but was used as a point of reference. If we're headed towards massive levels of inflation, after the wipe out of assets in the current deflation, then HP might be the best of the best when that time comes.