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  • Green Mountain Coffee Roasters Is On Target

    On May 19, 2015, we did a downside target review of Green Mountain Coffee Roasters (NASDAQ:GMCR) based on the work of Edson Gould. At the time, GMCR was trading at $88.69. Our downside assessment was as follows:

    "As can be seen above, the price of GMCR has declined below the conservative and mid-range downside targets of $110.08 and $81.40. The acceleration of the current decline seems to indicate that achieving the $52.71 extreme downside target is very likely."

    On August 6, 2015, GMCR declined as low as $52.40. This falls well within the indications that were provided by Gould's Speed Resistance Lines [SRL] at $52.71. We closed our downside assessment of GMCR with the following comment:

    "The fact that GMCR is prone to extreme moves up and down suggests that the extreme downside target is the point at which to start assessing risk and accumulating shares."

    Now that GMCR has fallen below the extreme downside target of $52.71, we think now is the time to review GMCR as a going concern for a potential transaction.

    The Setup

    Assuming that an investor is willing to accept total loss of funds, now is a great time to review the fundamentals of GMCR and determine if it will survive on its own or ultimately get acquired. Below is the updated SRL based on the work of Edson Gould.

    (click to enlarge)

    Our best guess is that buying GMCR in three stages on the way down is the most "prudent" approach. For those interested in the stock but don't like the prospect of catching a falling knife, we've outlined three potential starting points for investment at $40.66, $31.33 and $23.04. We'd suggest investments of 50%, 25% and 25% of allotted funds.

    Again, this recommendation is not for the faint of heart. Additionally, it is safest to assume all money put to this stock is a total loss and requires a significant amount of due diligence before any commitment is made. From a historical standpoint, a retest of the prior low ($17.25) is not unusual.

    Tags: GMCR
    Aug 06 2:33 PM | Link | Comment!
  • Chesapeake Energy Is On Target

    On April 26, 2012, we posted an article titled "A Warning For Chesapeake Energy Stockholders". In that article we said the following:

    "While it appears that Chesapeake Energy (NYSE:CHK) has seen all the punishment that could possibly lay ahead, we're concerned that the previous technical pattern in the period from 1993 to 1999 is about to repeat."

    The period from 1993 to 1999 saw decline from as high as $27 to under $1.00. The 2012 article was written when CHK was at $18.10 and had already fallen more than -66%. So far, CHK is on track to replicate the decline achieved from 1993-1999. The next downside target for Chesapeake Energy is $4.50.

    (click to enlarge)

    Tags: CHK
    Jul 24 2:48 PM | Link | 3 Comments
  • IBM: A Value Investor's Delight

    In April 2012, we published an article titled, "What Does Warren Buffett See In IBM?" At the time we concluded the article with the following thought:

    "…just imagine what IBM will look like after falling to a 52-week low."

    A reader of our article took exception to the idea of (NYSE:IBM) declining in price with the remark:

    "I have no idea why you think you could buy IBM on a 52 week low. There is nothing fundamental about the company that would lead one to think that might happen. IBM is a difficult company to short because people who own it primarily intend to hold it for a longer term, do not trade on margin, and do not sell their shares based on fear (Momintn. What Does Warren Buffett See in IBM? April 19, 2015. link.)."

    Since our article, IBM has declined from $207 to $161 with upside movement being limited to $213.

    (click to enlarge)

    In spite of the price decline of nearly -22% since 2012, IBM has increased the dividend by +53%. This has resulted in a situation where the price of IBM has becomes very compelling from a value perspective. As indicated in our original article on IBM, the growth of the dividend has become an overpowering force which is creating a stock that could eclipse all expectation for long-term investors. This leaves aside the topic of IBM share repurchases which Warren Buffett discussed in his 2011 shareholder letter.

    Our premise of IBM's valuation is narrowly perched on the work of Edson Gould's Altimeter. Below is an update of Gould's Altimeter since our April 2012 article.

    (click to enlarge)

    According to Gould's Altimeter, IBM is now undervalued below the levels of the 2008 low. We think that a value investor would have fun pouring over the data to determine the actual value of IBM. Gould's Speed Resistance Lines [SRL] indicate that the conservative downside target for IBM is $130. However, we think a process of accumulation at the current price, and below, is a prudent long-term strategy.

    Tags: IBM
    Jul 23 2:05 PM | Link | 1 Comment
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