Investment Course (a freshman - year Course of Study ) Week # 5
This is week number five and is your freshman year of learning to Invest Wisely. As you know, by now, we are using the Dow Jones 30 Industrial Companies in the pursuit of learning / applying analytics and of course - the art and science of Investing Wisely.
Note: The format for this week and next week is that I have cut back on the supportive notes, information and data I included in the first two weeks. So at the beginning of my six week rotation of 5 Dow components per week - in (week 7) I will repeat the longer version with more notes. To visit my latest 'long version' click on the following URL.
Introduction - (what to learn this week?)
For this week, I am continuing to walk you through the Dow 30 component companies. Next week will be the final set of 5 companies after which we will start all over. Over and over until you feel you have a grasp on how to focus your investment dollars in securities that offer the highest probability of profit with a fair risk ratio.
You should be studying each of them thoroughly and learning the basics for each. It is likely you will get sick of the repetition and feel like this is not necessary. I will repeat what I have shared before. I still go through the basic analytics of these companies and many more every single week. I am also profitable for every single year, and that is a lot of years. Few financial analysts whom I know go through this discipline, and I know of no investor that even comes close to "do his or her" homework - thoroughly.
As a freshman you will likely do what most all freshmen do and that is to convince yourself that you have learned "It All" and do not need the next three years or a diploma to be successful. View the Masters Golf Tournament, the probabilities of a 21 year old with an opening of 65 to win the masters is an excellent metaphor for Investing Wisely.
You will notice at the bottom I have also begun to offer you the indexes for Gold, Silver, Crude Oil and the U. S. Dollar.
I repeat and will continue to repeat: "this 'stuff' is a boring process and often an unnecessary exercise for many investors, but it is also very profitable.
General Market - Current Perspective
The following will be repeated each week: Within my work / analytics it is important to take into account the current position of the general market / sectors / industry groups and the economy as it relates to the companies that are being valuated. This is one of those - first things first situations. It is a fact that 60% of the influence of the direction of any security is that of the general market - bullish or bearish. A 20% influence is on the Sector and Industry Groups. That leaves only 20% for the Companies itself. I suggest two things: a) that you confirm my numbers and b) that when you invest that you had better - be in phase - with the bullish or bearish direction of the general market and sectors / industry groups. It is up to you to believe or dismiss this information. I urge to do your homework well and be very selective in the companies you take positions in. Many followers of my work / analytics - write to me with ridiculous remarks about the above and other important axioms of the marketplace. That my friends, is both dumb and totally ego centered. These people will ARE'T and NEVER will be consistent and profitable investors!
The general market is currently and remains over-valued, over-bought and is showing serious signs of deterioration, especially in the area of breadth. Interest rates are on the rise, and inflation is already an acute problem. These Dow 30 Industrials along with many other companies are quite vulnerable to a meaningful general market pullback. That means that you should strongly consider holding cash or perhaps taking bearish positions. I do not recommend taking short positions in any of these securities.
So - what is new to consider in the marketplace for this past week? I will have an updated report posted on Sunday, here in SafeHaven.com.
For me that is an easy question and will be for you, if you do your homework. The rally this past week remained right on schedule and should continue to do one of two things. The first is what most investors think and that is to assault the previous highs and create what is often called a break-out. I agree that this is a possibility. However, I have been waiting for a General Market Bearish Inflection Point for three plus months. So, as of this posting, I believe that we are much closer to a meaningful pullback than going - meaningfully higher. Yes the strongest Companies and Sectors are already higher but the vast majority is Not! This is particularly true with the Dow 30.
My focus for all companies, Dow 30 or others, is - Investing Wisely. My methodology of taking advantage of the bull / bear fundamental 'rotation,' technical 'cycles,' and 'inflection points' are especially critical in this marketplace and to your annual profitability. I believe, most every investor I have ever met can profit from this course. That is if you / they do your homework well. This is a vital discipline in today's marketplace.
Companies - Current Perspective
A Ranking, using each of my three (weighted disciplines) -- Comments for each Company -- and current Numeric Ranking (and ever changing 'rotation') of the position of each Company within the Dow 30 Industrials should give you plenty hard analytics homework every single week, but soon you will be doing it like a professional.
Grouping Five: (see below for a list of the six groupings of five - Dow 30 Industrial Companies.)
|Symbol and Current Numeric Ranking within the Dow 30 Industrials||Category||Fundamental |
|(VZ) Ranked: # 5||Bellwether||Good||Very Good||Good|
|Comments: Currently, at $30.6 - The theme, this week is the same as last week, for these five companies - and that is - that the information that you read in the "sources" below is Very Inconsistent and my analytics / valuations. This is particularly true when working with the enormous spread of information and date propounded by financial analysts. This is a major problem with investors who cannot read between the lines. Consensus analysis is the worst by far, so be careful when you think you have found a company that fits into my "Bell Curve." |
You will note that Verizon is currently carrying a rather high Ranking against its Dow peers. (please remember my strong emphasis on owning companies that are within the top 5% on my 'Bell Curve' -- if you compare the performance of CAT # 1. with say MRK #25. and other low rated Dow 30 companies you will understand. Next year, earnings' growth will fall back just a bit but will remain strong. The company is like Telephone currently under heavy accumulation. (I can explain that to you privately if you ask) Fundamentally, there appears to be consolidation of the recent growth, and I am not impressed with the longer-term. This week I suggest you look at the PEG - currently negative for VZ, but will improve. Can you answer the question of WHY? Technically, it looks like it is going to the moon, but that is highly unlikely. However, it definitely remains a hold. Consensus wise, it is only "good."
|(MRK) Ranked: # 25||Bellwether||Good||Good||Very Good - but not deserved.|
|Comments: Currently, at $33.3 - I suggest the company will improve but will remain one that will move, even close to the top of Ranking list against its Dow peers. Remember, this is again a "DOW" company that will produce very conservative 'numbers' as compared with other pharmaceutical (Non-Dow) companies. I see yet another pullback in price on the near-term horizon. Fundamentally, clearly MRK deserves its low ranking and my disapproval of its management style. Earnings will improve dramatically but that currently has not been reflected in its price action. That offers a major fundamental concern to me. What about you? Take another look at MRK's PEG - currently very high but will improve. Can you answer the question of WHY? Technically, it looks like it has topped. The risk / reward factor for owning MRK is not good. I would sell at the top of this current bounce. Consensus wise it is "very good." And that is unexplainable by this old Prof.|
|(PG) Ranked: # 22||Bellwether||Good||Very Good||Good|
|Comments: Currently, at $62.1 - the company has been in the 60s three times over the past ten months. If owning a company like PG is how you think investing should be pursued, then I suggest you stop reading this investment course. Fundamentally, This year, earnings' against next years earnings' are improving but not earnings' growth for the coming few years. Remember, JNJ like KO and PG are Dow components are very slow movers and definitely designed for a conservative investor. Technically, on a more near-term basis Proctor & Gamble is looking tired and not moving in the direction of a new high. Is there more life in it for the near term? My work says no. My asset management says - it is just not a competitive investment. In 1999 it peaked at nearly $50 and dropped to $22 within a year. It then moved to a high in 2008 of $68 - then pulled back to $43. Again this is pathetic performance, but not as bad as other Dow components. Consensus wise it is currently not one of the strongest. You should know that Consensus Analysis is very important but often not all that accurate (and that is an understatement)! The financial analysts have their favorites and are paid to say good things about - companies that are - undeserving. Think about that.|
|(MCD) Ranked: # 18||Bellwether||Good||Good||Good|
|Comments: Currently, at $76 - it sold for $79 in December. The recent mini-bounce is not impressive. The company looks healthy for a big Consumer Services company. I dislike the stock and I dislike their hamburgers. I live where they just put in a franchise, and that makes me sick. Fundamentally, I do not like McDonalds for the longer-term. The forward earnings' growth is flat and that is all you can expect from a company like this. Technically, it looks strong but be careful. I see a further pullback in the making. Consensus wise (and like so many companies in the Dow) the "Street" and its financial analysts are not doing an accurate job for you to follow their information and data - that is not a positive situation!|
|(MSFT) Ranked: # 27||Bellwether||Very Good||Very Good||Very Good !|
|Comments: Currently, at $26.2 - At this time, it is Ranked rather low by me and most everyone else, and I believe that is an accurate assessment. Fundamentally, MCD is going to fall back in its earnings from the lofty figures posted more recently. It is doing a good job of telling you that in its recent price action. I would point out that the longer-term picture (20 years or so) the company had gone nowhere. Technically, in 1999 it was at $46 per share, by 2002 it had dropped to $17 per share. The price recovered to $34. per share by 2007 and then fell again to $14 in 2009. Currently, Microsoft has only come back to the high twenties per share. These figures are pathetic. For those who own MSFT, I offer my sympathy and suggest that if you are a "Student" of the market you should know better than to participate with this historic performance. The Consensus (this is a blatant misrepresentation of the data provided to financial analysts and their presentation to you and I) The picture offered by the "Street", and its financial analysts are not doing an accurate job for you to follow their information and data - that is not a positive situation! Sound familiar, well you will hear more about this as I guide you through these 30 companies.|
In my 'Longer Version I have five (rather detailed) Notes: Again, click on the above URL to visit my last 'Longer Version' of this Course of Study.
You can find all Dow 30 Industrial Companies and a number of other supporting Bellwether and High Profile charts amongst the 100 or so in:http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID4095527
The Prof's Six Groupings of the Dow 30 Industrials
Grouping One: BAC, CSCO, GE, BA, XOM
Grouping Two: HPQ, AXP, KFT, TRV, CVX
Grouping Three: CAT, HD, KO, DIS, DD
Grouping Four: T, IBM, JNJ, AA, JPM
Grouping Five: VZ, MRK, PG, MCD, MSFT
Next Week -- Grouping Six: PFE, , MMM, UTX, WMT, INTC
Commodities - Current Perspective
Four for focus: These four commodities are offered in order to compare their on going analytics with that of the Dow 30 Industrials.
This presentation each week will be a simple update of the Technical picture. Fundamental and Consensus Analysis is much too complex to present in this format. However, understant in order to invest wisely in an appropriate ETF or Company the work / analytics is much the same as for any common stock.
|Symbol and Name||Category||Fundamental |
| Technical |
|Gold ($GOLD)||Bellwether||Very Good||Excellent||Very Good|
|Comments: Currently, at $1,458., Gold is and has moved up strongly and has been a leader since late 2008. Current Technicals: It looks like it is topping but may just keep doing its thing. If you were worried during the January 2011 pullback you can expect yet another, but a likely and perhaps more severe pullback in the coming weeks. Until Gold experiences a meaningful pullback, and then clearly fails to successfully test the previous highs, it is likely a hold. However, looking at the near-term and not wanting to "experience a meaningful pullback" - I suggest that prudence says that if Gold will not break-out strongly that it is a sell. Students and investors alike should develop an exit strategy. Few, ever even consider this as part of their investment philosophy.|
|Silver ($Silver)||Bellwether||Very Good||Excellent||Very Good|
| Comments: Currently, at $39.6., ( Gold & Silver track each other very well historically) Silver is and has moved up strongly and has been a leader since late 2008. Current Technicals: It looks like it is topping but may just keep doing its ting. Until Silver experiences a meaningful pullback, and then clearly fails to successfully test the previous highs, it is likely a hold. However, looking at the near-term and not wanting to "experience a meaningful pullback" - I suggest that prudence says that even though Silver has broken out on the upside while Gold has yet to do so that the longer-term performance for Silver will continue to track Gold both in a bullish manner as well as a bearish manner. |
You might want to consider that while Silver has out performed Gold on the more recent upside that - Silver may just do the same on the downside.
I suggest you re-read the above Comments on Gold.
|Crude Oil ($WTIC)||Bellwether||Very Good||Very Good||Very Good|
| Comments: Currently, at $110.5., Crude Oil is tracking Silver and the above is also applicable to this commodity. |
I suggest you re-read the above Comments on Gold.
|U. S. Dollar ($USD)||Bellwether||Very Good||Very Good||Good|
|Comments: Currently, at $75.6., at this time there is nothing to lead one to believe that the Dollar will be turning up - however!. Current Technicals: it is still in the range of the November lows and there is a possible technical scenario that would say that a turn-up is in the making. That turn-up could well be coincident with a turn-down in the General Market. In other words - a possible rally in the U. S. Dollar and a pullback in the General Stock Market? |
Stay alert, this could be a very interesting study / scenario for both students and investors.
You can also find all these Commodities and a number of other supporting Bellwether and High Profile charts amongst the 100 or so in:
Source information and data:
The Bottom Line
Your 'bottom line' will depend on just how proactive you are about doing your homework on the above Companies and perhaps asking questions of the Prof. (that's me!)
This Week's Home Work Assignment: (Same as last week and will be the same next week) Study at least 3 of my "Source information and data" (see above) and learn to Navigate through all that is offered. (the above will be your - on going homework assignment and will require many hours if not months - these sites offer much information - some good and some worthless - but can be very rewarding if you are willing to learn)
Next read up on each of these companies and make some notes from your favorite sources of information. You may even want to make file folders for each company. Referring back to your notes can be a valuable learning experience. Remember, this is boring "stuff" to many investors, but it will provide you accuracy and profitability in your investment strategy.
More Notes about this Course of Study
Visit the 'Longer Version' URL for this information:
You may want to review my 38-week course - Investment Basics with SafeHaven.com. (see the sidebar on the SafeHaven.com home page or Authors and my name.)
Wishing you a wonderful learning experience and the continued desire to grow your knowledge. Education is an essential part of living wisely and the experiences of life, I hope you make it fun.
Learning how to consistently profit in the Stock Market, in good times and as well as in not so good times requires education, experience, time and unfortunately mistakes which are called losses. I believe if you will work ast it, you can be profitable while you are learning?
Let me know if and when I can help and tell a friend about this Course of Study.
Thanks for your interest in my work / analytics and possible my professional asset management / consulting / mentoring services.
Smile, have fun - Investing Wisely,