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  • GoPro Achieves Our Extreme Downside Target

    On October 8, 2014, when GoPro (NASDAQ:GPRO) was trading at $89.93, we said the stock had a conservative downside target of $68.93 and an extreme downside target of $31.28. On December 23, 2014, after falling to the mid-range target of $45.50, we thought that the rout in the stock was over, for the most part. Although we thought that there was resistance at the $60 level, we figured an investment from the December 23rd level was acceptable with only a portion of the intended investable funds. We suggested "…putting only ¾ of the intended amount into GPRO with the remaining ¼ for the 'unlikely' event of falling to $31.28."

    Unfortunately, GPRO was never able to sustain the initial $60 level and fell as low as $37 before making a discernible rebound. It was from this level ($37), that GPRO did make a surge to $65. However, the $65 level was not to last as GPRO declined to the extreme downside target that was indicated as early as October 2014.

    (click to enlarge)

    Now that GPRO has declined to the extreme downside target, a cursory review of Value Line Investment Survey is in order. Based on the October 2015 Value Line, GPRO is short on meaningful data. However, the analyst for Value Line has the following thoughts:

    • Sales are surging
    • costs and expenses are declining
    • Bottom line figures are now in the positive
    • 2015 earnings have been increased

    The analyst for Value Line has the closing remark that "…the recent price correction may afford risk-tolerant accounts an attractive entry point…" At the current price, we can't argue about attractiveness but the future risks are the only concern.

    Tags: GPRO
    Oct 01 11:37 AM | Link | 2 Comments
  • Real Estate: Cycle Analysis

    On December 9, 2010, we wrote an article titled "Real Estate: The Verdict Is In". At the time, we said the following:

    "As we come to the close of 2010, it appears that based on the narrow scope of sources that we've selected, the bottom in real estate has come and gone."

    Our call of a bottom was a bold claim at the time because of the following points against a rise in real estate and their homebuilder stocks (NYSEARCA:XHB):

    Each of the above ideas were probably legitimate on their own and in a vacuum. However, financial markets tend to discount all of the issues that are generally known. Only a "black swan" event can take away the discounting mechanism of the markets. Thankfully, it is precisely because a "black swan" can't be predicted that makes it out of the purview of any market analysis.

    Through the passage of time, we have been able to see that our guess for a bottom in the real estate cycle was fairly close, based on the indicators presented at the time. This article will review the indicators that we cited in previous works. Finally, we'll review the real estate cycle as described by Roy Wenzlick, which is the basis for much of our projections on this topic.

    The first indicator is the Housing Starts of New Privately Owned Housing Units. Since our December 2010 article, the indicator has increased +124.44%, or more than double.

    (click to enlarge)

    The next indicator is the Real Estate Loans at All Commercial Banks. This indicator should be clear, if banks aren't lending then homes won't be sold.

    (click to enlarge)

    The next indicator plots the price of real estate for the U.S. Although there are regional differences, the general trend is the most important for assessing if a "rising tide is lifting all boats".

    (click to enlarge)

    Real Estate Cycle Analysis

    In the link below, we've included a revised and adjusted chart of Roy Wenzlick's cycle of real estate based on the low of 2010/2011.

    Wenzlick Cycle review

    Tags: XHB
    Sep 23 7:43 PM | Link | Comment!
  • Put Helmerich & Payne On Your List

    It is clear that the commodity market is in the dumps. The chart below outlines the course of the Bloomberg Commodity Index since the July 2008 peak.

    (click to enlarge)

    With the decline that has occurred in the index, it would be obvious to any long-term investor that there are values to be had. Yeah, there are risks but we're investors not savers (anyone confused about the difference between saving and investing? Savers expect the money to be there no matter what, investors are taking the risk that more or less will be there, after the passage of time). One idea that we think is worth entertaining (or researching) is a stock that we've followed for many years.

    But first the disclaimer. Oil is soon on it's way out. The alternatives like solar, super batteries, windmills and geothermal are going to replace the role of oil. In addition, a production war has broke out with Saudi Arabia trying to put shale producers out of business and Iran is about to come on-line with massive amounts of production. Goldman Sachs is saying that the price of oil could fall as low as $20, a proposed decline of more than -50% from the current level. The unthinkable is about to happen, just like with coal, once there were fears that we'd run out instead we're experiencing a glut. Those are the risks.

    In spite of all the bad news for the oil sector, there are still opportunities depending on the company selected and the timing of the purchase. One company that we like is Helmerich & Payne (NYSE:HP). According to Yahoo!Finance, Helmerich & Payne "…operates as a contract drilling company in South America, the Middle East, and Africa. It provides drilling rigs, equipment, personnel, and camps on a contract basis to explore for and develop oil and gas from onshore areas and fixed platforms, tension-leg platforms, and spars in offshore areas."

    Based on the work of Edson Gould, Helmerich & Payne has declined below the conservative and midrange targets of $76.82 and $58.13, respectively. All that is left for the downside, on a technical, is the extreme downside target of $39.43.

    (click to enlarge)

    While it would be nice for the extreme downside target to the best point for acquisition the reality is that there is likely room on the downside. In the last period when Helmerich & Payne experienced a parabolic rise and fall, the stock price declined -78%.

    (click to enlarge)

    If HP were to achieve a similar -77% decline as the period from June 23, 2008 to December 4, 2008, HP would fall to the $27.29 level. We advise that investors consider HP at the ascending $39.43 level or below.

    The fundamentals for HP are solid with Value Line Investment Survey indicating that the fair value of the stock is at $49.70 based on reduced estimated 2016 cash flow of $7.10. HP is burdened with long-term debt that is 10% of capital. Shares outstanding have increased +9% since 1999 which is a positive as debt and share increases have been kept in check.

    The dividend payout ratio is an decent indication of the best times to consider a stock. Whenever the dividend payout ratio exceeded 80% the price of Helmerich & Payne was at a relative low. Already, HP is at a payout ratio of 91.67% based on estimated 2015 earnings of $3.00 per share.

    (click to enlarge)

    Assuming the world of oil is going to disappear, there are no decent oil sector stocks. However, if a sliver of the industry remains after the current rout, then Helmerich & Payne will be one of the survivors, as they were after the 1980's collapse.

    Tags: HP
    Sep 15 10:33 AM | Link | Comment!
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