Month: July 2011

EK, Eastman Kodak

Hamilton

Here is another very clear EW pattern;

EK

Actually it is not clear how you got here, was the first top THE top or was it the second? There could be a triangle (green) which would suggest it is the second top, but equally convincing is the perfectly formed B-wave which would suggest the first top, and that the entire pattern since about 1973 is one single irregular A-B-C correction. Today it does not matter (except that there are an awful lot of B-waves all over the place. Concerning EK itself the light must be on green. The low in 2009 was $2.01, yesterdays low was at about $2.25, if that holds we must have at least a “dead cat bounce”.

Actually I had recommended the stock earlier, see charts below, then and now;

EK April 30 ek july 2011

That was on April 20th 2009, and the stock was around $3.50. It went to about $9, albeit rather erratically. I suspect that that was an A wave of a large A-B-C. The B has taken the stock to $2.25, an almost total retracement. The C should go back to about $9+

Fundamentally this is not entirely that far-fetched. Kodak is among the best “brands” in the world, on a par almost with Coke. They actually invented the digital camera and then forgot to market it, a huge mistake that is now perhaps the most classic example of a company losing it’s focus. But we all still know what a Kodak Moment is; there is no Leica or Canon moment to compare! More interestingly, Nortel just recently auctioned it’s patents to a consortium of companies that wanted to keep a stranglehold on that kind of stuff. The book-value of the patents was about $320 mln, the auction pulled in $ 4.5 bln., more than 10x as much. Perhaps there is a little treasure hidden somewhere in Rochester as well. Use fun money only!!

GE and MS, when patterns are crystal clear.

Hamilton

EW contains a lot of ambiguities which is why 2/3 of the time you are really not sure at all what might happen. To put it in other words, sometime the light is green, sometimes it is red and most of the time it is yellow. Two stocks that have nothing much in common are green for the next few years (but not necessarily months). Gen. Electric and Morgan Stanley both have very articulate A-B-C corrections which are somewhat stylized in the charts below. By the way, these charts do not show the intra-day or week lows, for instance GE actually did get below $6).

ge july 2011 ms july 2011

Unfortunately I cannot get them on the exact same time-frames, unless I put them together in one single chart;

ge ms july 2011

Both these patterns would strongly suggest that these stocks are back on their way up in a new bull market. MS has already retraced 50%of the first wave up, whereas GE may have a little more to drop in what is presumable a wave 2. In both cases a retest of the lows cannot be excluded completely but the odds are better that you will win with these stocks than with, for instance a Pepsi;

pep

This one is bright red. Should it make a similar A-B-C as the others a target of about $40, where wave 4 of previous degree resides , would fit the picture. That is down some $30 from where we are now and there is only $10 to the upside until you hit the upper trend-line. There is nothing particularly wrong with the stock. It has a P/E of 17 and yields about 3% .

YLO, Yellow Media

Hamilton

Three weeks ago it seemed that cutting out of YLO would be a bit like throwing away the baby with the bathwater. At the time it had reached a low at $2.04. Just a few days ago it bettered that low by a few ticks by reaching $1.99 Even then it looked like a 5 wave sequence was complete and that may still be the case, but with this additional low it looks even more credible. Here is the chart then and now;

YLO june 29 2011 ylo july 20 2011

The bounce back to about $3.50 has not (yet) occurred but in the meantime nothing is lost either. The stock now yields 30.39% at its current level of distribution/dividend. The P/E is 4.28. For those that adhere to the tenets of Graham & Dodd with respect to value investing, it does not get much better. After all they explain in “Security Analysis” how the market has a tendency to irrationally under-value certain out of favor stocks and how a savvy person (like you) can benefit. Here are the facts according to Bigcharts;

ylo facts

In the meantime according to mr. M White at Signature Global Advisors there is presently an open  short position of about 85 mln. shares or 15% of the outstanding stock which he has at only 520 mln. (525mln according to the company’s website). The average daily trade volume was about 4.7mln shares so it would take 18 days to wash out the shorts.Then of course there is the matter of the sale of one of their publications ,Auto Trader , for about $745, which for now at least has a good chance of going through. Using his share number of 520 that is $1.43 a share.

According to that same website (ylo.com) the enterprise value is around 5.26bln., debt is around 2.14bln. Revenue is about 1.4bln and revenue from the internet are growing at 38%. The commercial paper rating by DBRS is R-1 low. The way I see it the earlier mentioned target of $3.50 (as a minimum) is plausible, credible and both fundamentally and EW-wise entirely reasonable.

CMG, Chipotle Mexican Grill

Hamilton

CMG july 2011

Last Febr. this stock looked like it needed to go higher, but not by too much , perhaps $290. Now that we are at $340 it is definitely a sell. One possibility is that there was a “running triangle” wave 4. I am not even sure if that is a legitimate pattern. In any case we are exceeding the confines of the channel. The stock is up 8-fold in 2.5 years. Again this begs the question whether or not we are already in the next bubble. The stock is trading at a rather modest 56 P/E, yield is non-existent. If it is topping a drop of $120 is a minimum.