Values Biding Time

"Values go on increasing, while the market
rests..."
Samuel A. Nelson. The ABC of Stock
Speculation. Fraser Publishing. 1999. originally published
1903.

I think that this is the greatest gem of knowledge ever dispensed on the stock market. So what if the price of a stock is going nowhere? In fact, all things being equal, if the price is falling so much the better. To my thinking, value is accrued with the passage of time. With a steady dividend payment, especially a rising dividend, wealth is accruing at a rapid rate. Throw in a little inflation and you've got an honest to goodness asset.

A graphical example of value being accrued over time is the 13-year chart of Wal-Mart (WMT) below. If you ever come across a similar chart pattern then it would be worth your time to examine the company financials to verify the true value. Here is what I found out when I tried to confirm if Wal-Mart was actually increasing in value:

• Number of shares outstanding have decreased about 1% each year (good)
• Dividends increased every year for 33 years (good)
• Return on Equity in the high-teens (good)
• Above historical high dividend yield, according to IQ Trends (good)
• Long-term debt has doubled in last 10 years (bad)

The price pattern on Wal-Mart reflects a concern by investors, starting in 2000, that the consumer economy was going to be in trouble. If the price goes above $70 or goes below $45 then we'll have some advanced warning about what may be around the corner for the U.S. and Chinese economy. Seems that this company is a leading or more reliable indicator (for the time being).

In general, Wal-Mart's stock is not being recognized for the simple fact that the company can generate positive earnings. Although WMT's debt really bothers me, company management may be clever like a fox by amassing huge amounts of debt now to be paid off later with inflated dollars.

As much as this company appears to be increasing in value, I can't get the image of F.W. Woolworth's (the original five and dime store and former Dow Industrials component) out of my mind. Woolworth's was the equivalent of Wal-Mart but couldn't last even though it was offering rock bottom prices to the public.

Despite my concerns about WMT, I am looking for other Dividend Achievers with similar price patterns of trading in a "narrow" range. The longer the range, like 1906 to 1924 and 1966 to 1982 for the Dow Industrials, the more values are guaranteed to have increased. Touc.

Sell Meridian Biosciences (VIVO) at the Market

It is now time to recommend that Meridian Biosciences (VIVO) be sold at the market. The stock has performed reasonably since the research recommendation was issued on March 26, 2009. It is highly recommended that anyone who bought the stock based on my research should re-read the posting. The stock initially went down, but once the reporting of the swine flu came out the stock recovered all the losses and then started going higher. From the current level VIVO is poised to reach the $23.33 with little effort. However, the returns that this stock has provided within the last seventy-eight (78) days say that it is worthwhile considering alternatives.

VIVO was recommended when it was trading at $18.21. As of Friday June 12, 2009, VIVO was quoted at $20.35. This equals a return of 11.75% in almost 3 months. Conservatively, on an annualized basis this would equal approximately 54% return. Selling this stock now also generates a return 286% greater than the amount of the dividend yield if the stock was held for a whole year.

It is always recommended that when selling a stock, one should not place an order after hours or when the market is closed. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, I would rather leave some money on the table rather than have it taken away from me by the trades that are placed by institutions and market makers. Touc.

Sell H&R Block (HRB) at the Market

It is with regret that I have to recommend that H&R Block be sold at the market. The stock has performed reasonably since the research recommendation was issued on May 19, 2009. It is highly recommended that anyone who bought the stock based on my research should re-read the posting. The stock essentially went up from the date of recommendation. From the current level HRB is poised to reach the $19.15 level with little effort. However, the returns that this stock has provided within the last eighteen (18) days say that it is worthwhile considering alternatives.

HRB was recommended when it was trading at $14.42. As of Friday June 5, 2009 HRB was quoted at 16.06. This equals a return of 11.50% in a little more than two weeks. Conservatively, on an annualized basis this would equal approximately 233% return. Selling this stock now also generates a return 288% greater than the amount of the dividend yield if the stock was held for a whole year.

It is always recommended that when selling a stock, one should not place an order after hours or when the market is closed. This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, I would rather leave some money on the table rather than have it taken away from me by the trades that are placed by institutions and market makers. Touc.

Research Recommendation: Cardinal Health (CAH) at $29.95

According to MergentOnline, "Cardinal Health is a provider of products and services for the healthcare industry." Cardinal Health (CAH) has increased its dividend every year for 12 years straight.

Cardinal Health (CAH) is in a declining trend and is about to do a technical triple bottom. If successful, the stock of Cardinal Health will have a tremendous move up from the $27.75 level. On the other hand, if CAH cannot hold above $27.75 then the downside could take the stock to $9.60.

In June of 1997, Value Line Investment Survey said that with CAH trading at $25 the stock was expected to go to $50 by 2002. By 2002, CAH had gone to $70. In the Value Line dated May 29, 2009, CAH is conservatively expected to go to $85. If we cut that $85 in half we get $42.50 which is 42% above the current quoted price. Value Line has a mean price-to-cash flow ratio of 16. Based on 2008 cash flow figures, CAH is now selling 62% below the historical average price-to-cash flow ratio. Either the books are being cooked or this stock is ridiculously underpriced.

Applying Dow Theory to CAH gives us the following upside and downside targets:

• Upside
• $43.04
• $58.33
• $73.63

• Downside (focus on the downside risk)
  
• $28.70 (prior fair value based on 4/92 to 12/98 range)
  
• $23.80
• $9.60
  

If we were to invest in stocks the way that Charles H. Dow would then we would buy half of the intended amount now and purchase the second half if the price declines. For example, let's say that you wanted to invest $6000 in this company. What you would do is buy $3000 worth of stock now (approximately 100 shares) and hold the stock if the price goes up. If the stock goes down then you would invest the remaining $3ooo at the next level that you felt was ideal. This approach works well regardless of the market that you're in as long as you set aside the amount that you intend to invest before making the first purchase. Also, after making the first investment never invest the second half somewhere else.

The purpose of my research recommendations is to point out quality Dividend Achievers that have reached a new 52-week low. From this point begins the research to verify the quality of the stock for both short and long-term investing. These recommendations are within the context of the 2nd year of an 18-year bear market. A bear market that I expect to trade in a range between 16,000 and 5,000. Touc.