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Medical Device Companies

6/16/2014

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The group of companies that make up the medical device industry are a complicated and diverse set of companies. Investing in these companies can often be confusing, and selecting one particular company to invest in can be very difficult. The challenge becomes even more difficult when you realize that this industry is composed of many sub sectors, making a single selection almost impossible. The following are sub sectors that are often identified within the medical device industry.
  • Electro-medical equipment: Includes a variety of powered devices, such as pacemakers, patient-monitoring systems, MRI machines, diagnostic imaging equipment (including informatics equipment), and ultrasonic scanning devices. 
  • Irradiation apparatuses: Includes X-ray devices and other diagnostic imaging, as well as computed tomography equipment.
  • Surgical and medical instruments: Includes anesthesia apparatuses, orthopedic instruments, optical diagnostic apparatuses, blood transfusion devices, syringes, hypodermic needles, and catheters. 
  • Surgical appliances and supplies: Includes artificial joints and limbs, stents, orthopedic appliances, surgical dressings, disposable surgical drapes, hydrotherapy appliances, surgical kits, rubber medical and surgical gloves, and wheelchairs.
  • Dental equipment and supplies: Includes equipment, instruments, and supplies used by dentists, dental hygienists, and laboratories.  Specific products include dental hand instruments, plaster, drills, amalgams, cements, sterilizers, and dental chairs.

Medical device companies are also considered a little less sexy when compared to the glamour of the drug industry, but they include some of the genuine miracles of modern medicine: pacemakers, artificial joints, replacement heart valves, scanners, and radiotherapy machines. This vast industry directly employs more than 400,000 individuals and is indirectly responsible for almost 2 million more that supply and support this industry. But more important than providing employment, these company's products are a critical part of modern medical care, including everything from CT scanners and pacemakers to blood pressure cuffs and robots used by surgeons.

According to the US Government, the US remains the largest medical device market in the world (approximately 38 percent of the global medical device market in 2012) with a market size of around $110 billion, and it is expected to reach $133 billion by 2016, a 21% increase. There are more than 6,500 medical device companies in the U.S., mostly small and medium-sized enterprises.  More than 80 percent of these medical device companies have fewer than 50 employees, and many (notably innovative start-up companies) have little or no sales revenue.  

Investment in medical device research and development more than doubled during the 1990s, and research and development investment in the domestic sector remains more than twice the average for all U.S. manufacturers. Unfortunately for most medical device companies, they have to ramp up sales long before they ever become profitable, if they become profitable at all. Due to the long, draconian and sometimes unpredictable regulatory process that must be negotiated before a product can be sold, it can take from $70 million to $100 million in total sales before these businesses make their first cent of profits. This is truly a tough and very competitive industry.

Below is a list of the top 20 (by market capitalization) medical device companies. I have provided hot spots for each of the company's website, their current price as presented on Yahoo.com, and the current daily chart as presented by stockcharts.com. I have listed these so that in the future I can do further analysis on each of them. For today, I'm only interested in comparing the top two companies.


Medtronic, Inc.
Abbott Laboratories
Stryker Corp.
St Jude Medical Inc.
Zimmer Holdings, Inc.
Boston Scientifice Corporation
Smith and Nephew Inc.
Intuitive Surgical Inc.
Varian Medical Systems Inc.
Edwards Lifesciences Corp
ResMed Inc.
Hologic Inc.
Sirona Dental Systems Inc.
Align Technology Inc.
Opko Health, Inc.
Steris Corp.
Globus Medical Inc.
NuVasive Inc.
Cyberonics, Inc.
Wright Medical Group, Inc.

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Medtronic Inc and Abbott Laboratories are the two largest medical device companies and they are both on the list of Dividend Aristocrats. As a result, for me these two companies are a good place to begin to get acquainted with this industry. Medtronic operates in two segments: Cardiac and Vascular Group, and Restorative Therapies Group, while Abbott Laboratories operates in four different segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. 

Analysis of Medtronic Inc is pretty straight forward. Review the fundamentals, view the chart, and make a decision on whether to buy or sell the stock. Abbott Laboratories, on the other hand, is a little more difficult to analyze. Last year Abbott divested the pharma arm of the business and became solely a medical device company. Abbott's divested company became AbbVie Inc. (ABBV), a research-based biopharmaceutical company. Investors who owned stock in Abbott Laboratories before the split now own stock in both companies and have done very well for themselves. For this analysis, however, the comparison of historical fundamentals is based on information prior to the split, so a definitive comparative conclusion may be difficult to conclude.

That said, a true comparison would have to look at future projections for Abbott to decide if an investment is appropriate. With the EPS growing from $1.39 (ttm) today to an estimated $2.48 next year, the P/E ratio drops from 28 today to 16 next year and the PEG should drop similarly. These are great numbers, and if estimates are true, this company is growing fast. Hopefully with the information below and a whole bunch of thinking, I'll have the insight to determine which company is a good entry investment into this industry. 

Good Luck and Good Trading.


Medtronic, Inc.

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Abbott Laboratories

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15 June 2014
Price $60.70
1yr Target $65.63
Analysts 16
1yr Cap Gain 8.12%
Dividend $1.12
Yield 1.85%
1yr Tot Return 9.97%

Market Cap $60.64 Bil
3yr EarnGR 6.43%
5yr EarnGR 11.56%
3yr DivGR 8.15%
5yr DivGR 15.77%
Payout Ratio 37%
Beta 1.05
EPS (ttm) $3.02
EPS next yr $4.36
P/E 20.10
PEG 3.05
Debt/Equity .61
ROA 8.40%
ROE 16.10%



15 June 2014
Price $39.79
1yr Target $41.53
Analysts 18
1yr Cap Gain 4.37%
Dividend $0.88
Yield 2.21%
1yr Tot Return 6.58%

Market Cap $59.76 Bil
3yr EarnGR (2012) 0.27%
5yr EarnGR (2012) 9.99%
3yr DivGR (2012) 1.22%
5yr DivGR (2012) 5.01%
Payout Ratio 58%
Beta .58
EPS (ttm) $1.39
EPS next yr $2.48
P/E 28.63
PEG 2.42
Debt/Equity .31
ROA 6.90%
ROE 12.50%


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Medtronic, Inc. Headquarters
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Abbott Laboratories Headquarters
Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. The company operates in two segments, Cardiac and Vascular Group, and Restorative Therapies Group. The Cardiac and Vascular Group’s products include pacemakers; implantable defibrillators; leads and delivery systems; ablation products; electrophysiology catheters; products for the treatment of atrial fibrillation; information systems for the management of patients with cardiac rhythm disease management (CRDM) devices; coronary and peripheral stents and related delivery systems; therapies for uncontrolled hypertension; endovascular stent graft systems; heart valve replacement technologies; cardiac tissue ablation systems; and open heart and coronary bypass grafting surgical products. The Restorative Therapies Group offers products for various areas of the spine; bone graft substitutes; biologic products; trauma, implantable neurostimulation therapies, and drug delivery devices for the treatment of chronic pain, movement disorders, obsessive-compulsive disorder (OCD), overactive bladder, urinary retention, and fecal incontinence and gastroparesis; external insulin pumps; subcutaneous CGM systems; products to treat conditions of the ear, nose, and throat; and devices that incorporate advanced energy technology. It also manufactures and sells image-guided surgery and intra-operative imaging systems; and provides Web-based therapy management software solutions. The company serves hospitals, physicians, clinicians, and patients in approximately 140 countries. Medtronic, Inc. was founded in 1949 and is headquartered in Minneapolis, Minnesota. (Daily Chart) (Weekly Chart)
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. Its Established Pharmaceutical Products segment offers branded generic pharmaceuticals for the treatment of pancreatic exocrine insufficiency, irritable bowel syndrome or biliary spasm, pain, fever, inflammation, hypothyroidism, gynecological disorders, intrahepatic cholestasis or depressive symptoms, physiological rhythm of the colon, dyslipidemia, and hypertension, as well as provides anti-infective and influenza vaccines. The company’s Diagnostic Products segment provides diagnostic systems and tests, such as immunoassay and clinical chemistry systems; assays for screening and diagnosis for drugs of abuse, cancer, therapeutic drug monitoring, fertility, and physiological and infectious diseases; genomic-based tests; hematology systems and reagents; and diagnostic systems and tests for blood analysis, as well as instruments that automate the extraction, purification, and preparation of DNA and RNA from patient samples, and detects and measures infectious agents. Its Nutritional Products segment offers pediatric and adult nutritional products comprising various forms of prepared infant and follow-on formula. The company’s Vascular Products segment provides coronary, endovascular, vessel closure, and structural heart devices for the treatment of vascular disease. Abbott Laboratories also offers blood glucose monitoring meters, test strips, and data management software and accessories for people with diabetes; and medical devices for the eye, including cataract surgery, LASIK surgery, contact lens care products, and dry eye products. The company primarily serves retailers, wholesalers, hospitals, health care facilities, laboratories, physicians’ offices, and government agencies. The company was founded in 1888 and is headquartered in Abbott Park, Illinois. (Daily Chart) (Weekly Chart)

Lake Breaking News
MINNEAPOLIS AND DUBLIN - June 15, 2014 - Medtronic, Inc. (NYSE: MDT), a global leader in medical technology, services and solutions, and Covidien plc (NYSE: COV), a global healthcare technology and medical supplies provider, today announced that they have entered into a definitive agreement under which Medtronic has agreed to acquire Covidien in a cash-and-stock transaction valued at $93.22 per Covidien share, or a total of approximately $42.9 billion, based on Medtronic's closing stock price of $60.70 per share on June 13, 2014. 
The entire press release announcing the agreement under which Medtronic will acquire Covidien can be downloaded from the file located to the right. 
medtronic_inc._-press_release.pdf
File Size: 305 kb
File Type: pdf
Download File


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Eight Percent Solution

6/13/2014

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Looking for that eight percent total return among the Dividend Aristocrats can be difficult at times when the markets stop going up and begin to level off. I expect part of that eight percent from the dividend and the other part from the gain in the price of the stock itself. When the markets stop moving up, I'm reduced to the dividend itself at best and possibly less if the stock begins to move downward. For stocks that pay a dividend of 5% like AT&T or Verizon the pain can be uncomfortable. For stocks that pay a meager dividend of 1-2% like Lowe's Companies, the pain can be severe. 

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So where do I find companies to invest in?

One place to look (and there are others) is in the oil patch. And in the oil patch I look specifically at upstream operations. The oil and natural gas industry is made up of three distinct parts: upstream, midstream and downstream operations. Upstream operations refer to that part of the oil and gas industry that deals with exploration and production (E&P) operations. While profits in the oil and gas industry can be gained at all three levels of operations, I've found that the majority of profits occur in upstream operations. Upstream operations consist of searching for potential underground or underwater crude oil and natural gas deposits, drilling of exploratory wells, and subsequently drilling and operating the wells and bringing the crude oil and/or raw natural gas to the surface.


How can these companies generate the eight percent total return that I need? 

They can do it because they're organized as Master Limited Partnerships (MLP). MLPs return all of their profits to their shareholders or unit holders in the form of dividend distributions. MLPs are limited to enterprises that are primarily engaged in natural resources, such as petroleum and natural gas extraction and transportation. To qualify for MLP status, a partnership must generate at least 90 percent of its income from activities related to the production, processing or transportation of oil, natural gas and coal. MLPs are then exempt from corporate income tax at both the state and federal levels and may record a pro-rated share of depreciation on their own tax forms to reduce liability. 

Generally the stock of MLPs grow very slowly, if at all, because the payout ratios are usually around 90%. This leaves little in the form of retained earnings to grow the company and eventually increase the dividend. They do, however, tend to distribute dividends at a rate that is 5-6 times higher than normal securities (8-11%). As a result these are great securities for investors seeking current income or as great vehicles for generating income for investing in other securities that will grow dividends over time.

There are a number of companies that fit this description and they can be easily found using any number of stock screeners. The following are six of these companies that I'm currently accumulating and enjoying the benefit of a nice dividend stream. Other possible candidates can be found in the "Oil and Gas Exploration and Production" section of this website.



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BreitBurn Energy Partners L.P. (BBEP) engages in the acquisition, exploitation, and development of oil and gas properties in the United States. The company’s properties include natural gas, oil, and midstream assets comprising fields in the Antrim Shale in Michigan, and the New Albany Shale in Indiana and Kentucky; the Evanston and Green River Basins in southwestern Wyoming, the Wind River and Big Horn Basins in central Wyoming, and the Powder River Basin in eastern Wyoming; the Permian Basin in Texas; the Los Angeles Basin in California; the Belridge Field in the San Joaquin Basin in California; and fields in Florida’s Sunniland Trend. As of December 31, 2012, its total estimated proved reserves were 149.4 million barrels of oil equivalent. BreitBurn GP, LLC serves as the general partner to the company. BreitBurn Energy Partners L.P. was founded in 2006 and is headquartered in Los Angeles, California. (Daily Chart) (Weekly Chart)

11 June 2014
Price $21.63
1yr Target $22.39
Analysts 14
1yr Cap Gain 3.51%
Dividend $1.99
Yield 9.20%


1yr Tot Return

12.71%
Dividends are
paid Monthly

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Linn Energy, LLC (LINE) an independent oil and natural gas company, acquires and develops oil and natural gas properties. The company’s properties are located in Rockies, the Mid-Continent, the Hugoton Basin, California, the Permian Basin, Michigan, Illinois, and East Texas in the United States. As of December 31, 2013, it had proved reserves of 6,403 billion cubic feet equivalent; and operated 19,810 gross productive wells. The company was founded in 2003 and is headquartered in Houston, Texas. (Daily Chart) (Weekly Chart)

11 June 2014
Price $30.04
1yr Target $33.79
Analysts 14
1yr Cap Gain 12.48%
Dividend $2.90
Yield 9.65%


1yr Tot Return

22.13%
Dividends are
paid Monthly

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Memorial Production Partners LP, (MEMP) through its subsidiary, Memorial Production Operating LLC, engages in the acquisition, development, exploitation, and production of oil and natural gas properties. Its properties consist of operated and non-operated interests in producing and undeveloped leasehold acreage, and interests in identified producing wells principally located in Texas, Louisiana, and offshore southern California. As of December 31, 2012, its total estimated proved reserves were approximately 609 billion cubic feet of natural gas equivalent; and owned interests in 1,671 gross producing wells. Memorial Production Partners GP LLC serves as the general partner of Memorial Production Partners LP. The company was founded in 2011 and is based in Houston, Texas. (Daily Chart) (Weekly Chart)

11 June 2014
Price $23.08
1yr Target $25.10
Analysts 10
1yr Cap Gain 8.75%
Dividend $2.20
Yield 9.53%


1yr Tot Return

18.28%

Dividends are
paid Quarterly

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Mid-Con Energy Partners, LP (MCEP) engages in the acquisition, exploitation, development, and production of oil and natural gas properties in North America. Its properties are located in Southern Oklahoma, Northeastern Oklahoma and parts of Oklahoma, and Colorado within the Hugoton Basin in the Mid-Continent region of the United States. The company owns a 75% average working interest in 272 net producing wells, 107 net injection wells, and 61 net wells shut-in or waiting on completion. As of December 31, 2012, its total estimated proved reserves were approximately 13.1 million barrels of oil equivalent. Mid-Con Energy GP, LLC serves as the general partner of Mid-Con Energy Partners, LP. The company was founded in 2011 and is headquartered is Dallas, Texas. (Daily Chart) (Weekly Chart)

11 June 2014
Price $21.43
1yr Target $25.71
Analysts 7
1yr Cap Gain 19.97%
Dividend $2.06
Yield 9.61%


1yr Tot Return

29.58%

Dividends are
paid Quarterly

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QR Energy, LP, (QRE) through its subsidiary, QRE Operating, LLC, engages in the acquisition, exploitation, development, and production of oil and natural gas properties in the United States. As of December 31, 2012, the company’s properties consisted of working interests in 4,527 gross producing wells located in Alabama, Arkansas, Florida, Kansas, Louisiana, Michigan, New Mexico, Oklahoma, and Texas. It also had estimated net proved reserves of 56.8 million barrels of oil and condensate; 190.3 billion cubic feet of natural gas; and 10.6 million barrels of natural gas liquids. QRE GP, LLC operates as the general partner of the company. QR Energy, LP was founded in 2006 and is headquartered in Houston, Texas. (Daily Chart) (Weekly Chart)

11 June 2014
Price $17.68
1yr Target $19.27
Analysts 11
1yr Cap Gain 8.99%
Dividend $1.95
Yield 11.03%


1yr Tot Return

20.02%

Dividends are
paid Monthly

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Vanguard Natural Resources, LLC, (VNR) through its subsidiaries, engages in the acquisition and development of oil and natural gas properties in the United States. It owns properties and oil and natural gas reserves primarily located in nine operating areas: the Arkoma Basin in Arkansas and Oklahoma; the Permian Basin in West Texas and New Mexico; the Big Horn Basin in Wyoming and Montana; the Piceance Basin in Colorado; South Texas; the Williston Basin in North Dakota and Montana; the Wind River Basin in Wyoming; the Powder River Basin in Wyoming; and Mississippi. As of December 31, 2012, the company had total proved reserves of 152.2 million barrels of oil equivalent, as well as owned working interests in 2,266 net productive wells and approximately 785,085 gross undeveloped acres. Vanguard Natural Resources, LLC was founded in 2006 and is headquartered in Houston, Texas. (Daily Chart) (Weekly Chart)

11 June 2014
Price $30.85
1yr Target $32.73
Analysts 11
1yr Cap Gain 6.09%
Dividend $2.52
Yield 8.16%


1yr Tot Return

14.25%

Dividends are
paid Monthly

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Soft Drink Companies

6/12/2014

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Today I'm comparing what I consider to be the top three soft drink companies -- Coca-Cola Co, Pepsico, and Dr Pepper Snapple. I've made the conscious decision not to include Monster Inc in this comparison but others may want to look at this company if they consider it to be a competitor of the "Big Three". Personally I consider it one of the high energy drink companies and not part of the mainstream soft drink market. Others may differ.

As for these "Big Three" soft drink companies, any comparison must include both an understanding of the product mix as well as the area of distribution. Coca-Cola is by far the largest world wide distributor of nonalcoholic soft drinks among any of the soft drink companies. Pepsico, while the second largest distributor of soft drinks in the world, makes a large potion of it profits from its snack food business. In fact, the snack food portion of its  business is currently growing faster than its soft drink business. Dr Pepper Snapple is a pure soft drink company and is a tough competitor for Coca-Cola but its distribution is limited primarily to North America and its product line is dominated by carbonated soft drinks.

When comparing similar companies I often like to lay out the information in a side by side comparison to see what interesting information I can discover. When I do this I push away all the opinions and simply look at the few fundamentals I'm interested in for insight. Next I look at the stock chart of each of the companies and see what insight I can gather from the price action and the momentum indicators I follow (see the hot spots in the company descriptions). This process provides me with a simple and clear comparison among the companies and I get to accurately see just how they stack up against one another. In the past I've found this to be a very useful exercise. 


Coca-Cola

Pepsico

Dr Pepper Snapple

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11 June 2014
Price $40.87
1yr Target $44.59
Analysts 20
1yr Cap Gain 9.10%
Dividend $1.22
Yield 2.98%
1yr Tot Return 12.08%
3yr EarnGR -9.02%
5yr EarnGR 8.90%
3yr DivGR 8.28%
5yr DivGR 8.06%
Payout Ratio 65%
Beta .48
EPS (ttm) $1.88
EPS next yr $2.24
P/E 21.85
PEG 3.26
Debt/Equity 1.18
ROA 9.40%
ROE 26.00%



11 June 2014
Price $87.78
1yr Target $93.17
Analysts 18
1yr Cap Gain 6.14%
Dividend $2.62
Yield 2.98%
1yr Tot Return 9.12%
3yr EarnGR 3.34%
5yr EarnGR 6.11%
3yr DivGR 5.76%
5yr DivGR 6.30%
Payout Ratio 59%
Beta .39
EPS (ttm) $4.42
EPS next yr $4.89
P/E 20.00
PEG 2.78
Debt/Equity 1.41
ROA 8.90%
ROE 29.90%



11 June 2014
Price $58.22
1yr Target $56.66
Analysts 14
1yr Cap Gain -2.68%
Dividend $1.64
Yield 2.81%
1yr Tot Return 0.13%
3yr EarnGR 11.88%
5yr EarnGR N/A
3yr DivGR 18.88%
5yr DivGR N/A
Payout Ratio 50%
Beta .15
EPS (ttm) $3.32
EPS next yr $3.68
P/E 17.60
PEG 2.44
Debt/Equity 1.20
ROA 8.10%
ROE 29.50%


The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Its sparkling beverages include nonalcoholic ready-to-drink beverages with carbonation, such as carbonated energy drinks, and carbonated waters and flavored waters. The company’s still beverages comprise nonalcoholic beverages without carbonation, including noncarbonated waters, flavored and enhanced waters, noncarbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks. It also provides flavoring ingredients, sweeteners, powders for purified water products, beverage ingredients, and fountain syrups. The Coca-Cola Company sells its products primarily under the Coca-Cola, Diet Coke, Coca-Cola Light, Coca-Cola Zero, Sprite, Fanta, Minute Maid, Powerade, Aquarius, Dasani, Glacéau Vitaminwater, Georgia, Simply, Del Valle, Ayataka, and I Lohas brand names. The company offers its beverage products through a network of company-owned or controlled bottling and distribution operators, as well as through independently owned bottling partners, distributors, wholesalers, and retailers. The Coca-Cola Company was founded in 1886 and is headquartered in Atlanta, Georgia. (Daily Chart) (Weekly Chart)
PepsiCo, Inc. (PEP) operates as a food and beverage company worldwide. The company’s PepsiCo Americas Foods division offers Lay’s and Ruffles potato chips, Doritos and Tostitos tortilla chips, Cheetos cheese flavored snacks, branded dips, and Fritos corn and Santitas tortilla chips; Quaker oatmeal, Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Quaker grits, Cap’n Crunch cereal, Life cereal, and Quaker rice cakes; Rice-A-Roni, Near East, and Pasta Roni side dishes; Quaker-brand cereals and snacks; and snack foods under Marias Gamesa, Cheetos, Doritos, Ruffles, Emperador, Saladitas, Elma Chips, Rosquinhas Mabel, Sabritas, and Tostitos brands. Its PepsiCo Americas Beverages division provides beverage concentrates, fountain syrups, and finished goods under Pepsi, Mountain Dew, Gatorade, Diet Pepsi, Aquafina, 7UP, Diet Mountain Dew, Tropicana Pure Premium, Sierra Mist, and Mirinda brands; and ready-to-drink tea and coffee products. The company’s PepsiCo Europe division offers snacks under Lay’s, Walkers, Doritos, Cheetos, and Ruffles brands, as well as Quaker-brand cereals and snacks; beverage concentrates, fountain syrups, and finished goods under Pepsi, Pepsi Max, 7UP, Diet Pepsi, and Tropicana brands; ready-to-drink tea products; and dairy products under Domik v Derevne, Chudo, and Agusha brands. Its PepsiCo Asia, Middle East, and Africa division provides snack foods under Lay’s, Chipsy, Kurkure, Doritos, Cheetos, and Smith’s brands; cereals and snacks under the Quaker name; beverage concentrates, fountain syrups, and finished goods under Pepsi, Mirinda, 7UP, Mountain Dew, Aquafina, and Tropicana brands; and ready-to-drink tea products. The company serves wholesale and foodservice distributors, grocery and convenience stores, mass merchandisers, membership stores, and authorized independent bottlers through direct-store-delivery systems, customer warehouses, and distributor networks. PepsiCo, Inc. was founded in 1898 and is headquartered in Purchase, New York. (Daily Chart) (Weekly Chart)
Dr Pepper Snapple Group, Inc. (DPS) operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. The company operates in three segments: Beverage Concentrates, Packaged Beverages, and Latin America Beverages. It offers a portfolio of flavored (non-cola) carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including ready-to-drink teas, juices, juice drinks, mixers, and water. The company’s brand portfolio includes CSD brands, such as Dr Pepper, Canada Dry, 7UP, Squirt, Crush, A&W, Peñafiel, Sunkist soda, Schweppes, and Sun Drop; and NCB brands comprising Snapple, Hawaiian Punch, Mott’s, Clamato, Mr & Mrs T mixers, and Rose’s. It sells its products primarily to bottlers, distributors, and retailers. Dr Pepper Snapple Group, Inc. was incorporated in 2007 and is headquartered in Plano, Texas. (Daily Chart) (Weekly Chart)
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The Market Is Heating Up

6/11/2014

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Whenever the pool of potential buy candidates begins to dry up as it has recently, I begin to recognize the market as being too expensive. It's also a sign that I need to be a little more selective in my commitments. Just a few months ago I could easily find hundreds of potential buy candidates, but today the number has fallen to only a few. And this is why I keep coming back to the same investment ideas, over and over and over again. 
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As overall stock prices begin to rise, the market values of the underlying companies also begin to increase. With those rising market values comes increasing investment risks due to overpayment (see chart on right). The easiest way to see this is by watching the rising P/E ratios of individual stocks. As market values are bid up faster than earnings rise, P/E ratios begin to expand rapidly. Quality stocks that could have been bought for 15 to 18 times their earnings just a few months ago are suddenly selling for over 20 times their earnings. And many more are selling for 25 to 30 times earnings. A conservative investor shudders at these values and always takes these statistics into account when deciding on whether to invest his hard earned funds. 

Another typical symptom of a rising market are the decreasing yields on equities. When stock prices are rising faster than the companies ability to raise the dividend, the yield will begin to fall. That decreasing yield may just be telling the astute investor that the market is getting a little bit too expensive. 

At some point the prudent investor has to wait for value to re-enter the market before once again committing funds. 

PictureS&P500 P/E Ratio
Now I'm not saying that a bear market is imminent, nor am I saying that the bull market is about to come to an end any time soon. I'm just saying that I have certain guidelines that I follow when selecting companies to invest in and as those guidelines are bent, stretched or broken, I need to be a little more prudent in my selection. 

As can be seen in the chart to the left, the historical S&P500 has a mean average of 15.51 and a median average of 14.55. Today the S&P500 is quoted at 19.47 times earnings. This is 25% above the historical mean. 

PictureS&P500 Weekly Chart
A quick view of the 2 year weekly chart (on the right) visually illustrates what's been going on. The market has risen quite nicely over the last two years and since the P/E ratio has been expanding, it's obvious that the market is rising faster than earnings. This can't continue indefinitely. At some point the market will level off and allow revenues and earnings to catch up with the rising stock prices because buyers will become scarce. When that happens, portfolio increases will slow. 

In order to keep from falling into this trap, it's prudent for investors to adhere to their individual guidelines and therefore become more selective in choosing investments. The result of increasing investment discipline is always a shrinking pool of buy candidates, which is what I'm seeing in my research today. 

Fortunately for investment researchers, there's always a few candidates to buy even in the worst of times. As I find them I'll write about them here on this website. In the meantime I'll continue to buy stocks from that shrinking pool.

Good Luck and Good Trading.

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Personal Products Companies

6/10/2014

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When researching companies I often like to lay out information from similar companies in a side by side comparison to see what interesting information I can discover. When I do I push away all the opinions and simply look at the few fundamentals I'm interested in for insight. Next I look at the stock chart of each of the companies and see what insight I can gather from the price action and the momentum indicators I follow. This process provides me with a simple and clear comparison among the companies and I get to accurately see just how they stack up against one another. In the past I've found this to be a very useful exercise. Hopefully this will make me a better investor.

Proctor and Gamble

Colgate Palmolive

Kimberly Clark

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9 June 2014
Price $80.09
1yr Target $87.32
Analysts 19
1yr Cap Gain 9.03%
Dividend $2.57
Yield 3.21%

1yr Tot Return 12.24%
3yr EarnGR -2.05%
5yr EarnGR 1.18%
3yr DivGR 7.94%
5yr DivGR 9.11%
Payout Ratio 64%
Beta .42
EPS (ttm) $3.75
EPS next yr $4.52
P/E 21.59
PEG 2.58

Debt/Equity 0.53
ROA 7.50%
ROE 15.80%



9 June 2014
Price $68.44
1yr Target $68.75
Analysts 20
1yr Cap Gain 0.45%
Dividend $1.44
Yield 2.10%
1yr Tot Return 2.55%
3yr EarnGR 3.41%
5yr EarnGR 5.39%
3yr DivGR 8.57%
5yr DivGR 11.19%
Payout Ratio 62%
Beta .43
EPS (ttm) $2.32
EPS next yr $3.30
P/E 29.50
PEG 3.31

Debt/Equity 4.09
ROA 15.70%
ROE 119.70%



9 June 2014
Price $111.98
1yr Target $109.13
Analysts 15
1yr Cap Gain -2.55%
Dividend $3.36
Yield 3.00%
1yr Tot Return 0.45%
3yr EarnGR 7.43%
5yr EarnGR 6.48%
3yr DivGR 6.99%
5yr DivGR 6.90%
Payout Ratio 60%
Beta .23
EPS (ttm) $5.58
EPS next yr $6.60
P/E 20.07
PEG 2.91

Debt/Equity 1.48
ROA 11.20%
ROE 46.30%


The Procter & Gamble Company (PG), together with its subsidiaries, manufactures and sells branded consumer packaged goods. The company operates through five segments: Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care. The Beauty segment offers antiperspirants and deodorants, cosmetics, personal cleansing, skin care, hair care, hair colors, prestige products, and professional salon products under the Head & Shoulders, Olay, Pantene, SK-II, and Wella brand names. The Grooming segment provides blades and razors, pre- and post-shave products, and electronic hair removal devices under the Braun, Fusion, Gillette, Mach3, and Prestobarba brand names. The Health Care segment offers feminine care and incontinence products; toothbrush, toothpaste, and other oral care products; and gastrointestinal, rapid diagnostics, respiratory, vitamins/minerals/supplements, and other personal health care products. This segment markets its products under the Always, Crest, Oral-B, and Vicks brand names. The Fabric Care and Home Care segment provides bleach and laundry additives, fabric enhancers, and laundry detergents; air care, dish care, and surface care products; batteries; pet care products; and professional products. This segment sells its products under the Ace, Ariel, Dawn, Downy, Duracell, Febreze, Gain, Iams, and Tide brand names. The Baby Care and Family Care segment offers baby wipes, diapers, pants, paper towels, tissues, and toilet papers under the Bounty, Charmin, and Pampers brand names. The company markets its products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, high-frequency stores, and e-commerce in approximately 180 countries worldwide. The Procter & Gamble Company was founded in 1837 and is based in Cincinnati, Ohio. (Daily Chart) (Weekly Chart)

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. The company operates in two segments: Oral, Personal and Home Care; and Pet Nutrition. It offers oral care products, including toothpaste, toothbrushes, and mouth rinses, as well as dental floss and pharmaceutical products for dentists and other oral health professionals; personal care products comprising liquid hand soaps, shower gels, bar soaps, deodorants, antiperspirants, shampoos, and conditioners; and home care products, such as laundry and dishwashing detergents, dishwashing liquids, household cleaners, oil soaps, bleaches, and fabric conditioners. The company provides its oral, personal, and home care products primarily under the Colgate Total, Colgate Sensitive Pro-Relief, Colgate Max Fresh, Colgate Optic White, Colgate Luminous White, Colgate 360°, Colgate Plax, Palmolive, Protex, Softsoap, Sanex, Irish Spring, Speed Stick, Lady Speed Stick, Caprice, Ajax, Axion, Fabuloso, Murphy’s, Suavitel, Soupline, Sorriso, Kolynos, elmex, Tom’s of Maine, and Mennen brand names to wholesale and retail distributors. It also offers pet nutrition products for dogs and cats. The company markets its pet foods through pet supply retailers and veterinarians for everyday nutritional needs under the Hill’s Science Diet brand name; and a range of therapeutic products through veterinarians and pet supply retailers to manage disease conditions in dogs and cats under the Hill’s Prescription Diet brand name. Colgate-Palmolive Company was founded in 1806 and is headquartered in New York, New York. (Daily Chart) (Weekly Chart)
Kimberly-Clark Corporation (KMB) , together with its subsidiaries, manufactures and markets personal care, consumer tissue, and health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional, and Health Care. The Personal Care segment offers disposable diapers, training and youth pants, swimpants, baby wipes, feminine and incontinence care products, and related products under the Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex, Depend, Plenitud, and Poise brand names. The Consumer Tissue segment provides facial and bathroom tissue, paper towels, napkins, and related products under the Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Hakle, and Page brands. The K-C Professional segment offers apparel, wipers, soaps, sanitizers, tissues, and towels under the Kleenex, Scott, WypAll, Kimtech, and Jackson Safety brand names. The Health Care segment provides surgical and infection prevention products; and medical devices focused on pain management, respiratory, and digestive health under the Kimberly-Clark and ON-Q brands. The company sells its products for household use directly to supermarkets, mass merchandisers, drugstores, warehouse clubs, variety and department stores, and other retail outlets, as well as through other distributors and e-commerce; and away-from-home use products through distributors and directly to manufacturing, lodging, office building, food service, health care establishments, and public facilities. Kimberly-Clark Corporation was founded in 1872 and is headquartered in Dallas, Texas. (Daily Chart) (Weekly Chart)
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I Love Mondays

6/9/2014

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I love Mondays. A weekend full of thinking and planning based on Friday’s closing stock prices is finally over and it’s now decision time. Soon the market will open and once it does, stock prices will begin to fluctuate and all those planning assumptions will begin to change. If the market opens well, buys will be executed. Those stock buys will quickly be followed by covered call sales to bring money back into the account and reduce overall costs. Mondays can be a tremendous amount of fun but they can also be quite active and exciting days too. 

I love Mondays.
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"When I wake up on a Monday morning and I realize I don't have to go and work at the civil service, I really think I've won."
-- Paul Merton, British Actor and Comedian

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Six Companies On My Want List

6/7/2014

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Companies that have an estimated one year gain greater than eight percent and a total one year gain greater than ten percent tend to get my attention. This weekend I found the following six companies that fit this description so now they're all on my "Want List". A few of these I've already started accumulating, so I'll be adding to these positions in the near future. The ones that I don't already have a position in will be included in my next buying decision. 

For a more thorough discussion of some of these stocks, please see the "investing articles" section located elsewhere on this site.

Good Luck and Good Trading. 


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Comcast Corp
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Aflac Inc
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Proctor and Gamble
Price $52.91
1 Yr Target $60.77
1 Yr Cap Gain 14.86%
Yield 1.70%
1 yr Tot Gain 16.56%
Price $62.53
1 Yr Target $69.06
1 Yr Cap Gain 10.44%
Yield 2.37%
1 yr Tot Gain 12.81%
Price $80.03
1 Yr Target $87.32
1 Yr Cap Gain 9.11%
Yield 3.01%
1 yr Tot Gain 12.12%

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Coca-Cola Co.
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Lowe's Companies
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T. Rowe Price
Price $40.99
1 Yr Target $44.62
1 Yr Cap Gain 8.86%
Yield 2.98%
1 yr Tot Gain 11.84%
Price $47.77
1 Yr Target $52.23
1 Yr Cap Gain 9.34%
Yield 1.51%
1 yr Tot Gain 10.85%
Price $84.41
1 Yr Target $91.58
1 Yr Cap Gain 8.49%
Yield 2.09%
1 yr Tot Gain 10.58%

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Target Turnaround Coming Soon

6/4/2014

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Target may just be turning around faster than anyone had thought just a few weeks ago. The company appears to be moving very quickly to fix its admitted problems by removing the executives responsible for the recent security breaches, removing executives responsible for the Canadian inventory problems, and initiating a new digital initiative to push sales faster into the digital era.

For a company that's usually very secretive about its strategy, these have been very visible actions. 
 
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"We need to accelerate our digital transformation and become a leading omnichannel retailer. To do this, we will move quickly to become more flexible in how we serve our guests, eliminating barriers that prevent them from shopping with us where and when they want."

-- John Mulligan, Interim CEO of Target Corp 

What's driving all of this? The obvious answer is the much publicized security breach last fall just before Christmas and affecting the busiest selling season for discount retailers. But more than that, the merchandise got stale, online sales weren't growing as expected and the revenues from their Canadian stores collapsed loosing $1.6 billion in its first year in business. All of this was just too much and Target had to do something.

CIO Beth Jacob has been fired as a result of the data breach which occurred under her watch. Also fired are the CEO Gregg Steinhafel as well as Tony Fisher, head of Target Canada, where Target stumbled so badly while entering that country. 

Target's new digital initiatives were started by bringing together four technology leaders from outside the retail industry to form a digital advisory group to help speed up new ideas and push the retailer’s digital strategies. These four leaders are Match.com CEO and OkCupid founder Sam Yagan, Orbitz Worldwide’s Roger Lieu, Bain Capital Ventures’ Ajay Agarwal and Accompani CEO and former Google Analytics lead Amy Chang.


Match.com's CEO Sam Yagan lays out these ideas in the video below.


Target has already started testing the concept of same-day delivery of products purchased through their website, Target.com. Their plan is to also roll out this service next month in certain cities within the United States. The cities most discussed have been Boston, Miami and Minneapolis (no surprise picking this location). Shoppers at the Target.com website in these three cities will be able to sign up for this service and be charged $10 for delivery. Orders placed before 1:30 pm are expected to be delivered before 9 p.m. on the same day. 

What gives me the greatest inclination that Target may be turning the corner is the price chart of the stock itself. As can be seen in the daily chart, the MACD is below the zero line and turning up. For me, that's a great sign. The RSI is also moving up and it looks like the price itself has bottomed and turned up. On the weekly chart the stock has put in a double bottom near 55 and the MACD and RSI are showing higher lows. All signs that the downward pressure is subsiding which is a precursor to a move higher. 

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Daily Chart
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Weekly Chart

That's my rationale for entering the stock later this week. If I'm wrong, it'll continue to move downward. But if I'm right, it'll start to move up soon and I'll be one happy young man. With a dividend distribution rate near 3% and a 3-year and 5-year dividend growth rate above 20%, this might just be a great stock for me to buy and hold.

Good Luck and Good Trading. 


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Living The Dream

6/3/2014

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The dream is financial freedom. 
The safety net is financial security. 
The life is a self directed life.


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Figuring out how much income is needed for retirement is a very personal dilemma for each and every one of us. It has a lot to do with our personal needs, wants and desires as we age. And it has a lot to do with our image of what retirement is supposed to be. What most of us find out as we approach retirement is that the image we had when we were younger isn't the image we have as we get older. Unfortunately for most of us, the retirement we wanted is rarely the one we get. But with a little bit of planning, anything is possible.

If you want to end up living the retirement you want, you need to start at the end and work the problem backwards. Figure out how much income is needed in retirement and then save and allocate your funds appropriately. For example, suppose an investor calculates that he needs $50,000 per year in income in order to retire comfortably. I've chosen that number because that's approximately what a family of 4 lives on in the United States today, according to the Bureau of Labor Statistics. So how does an individual dividend investor obtain this level of income?  The answer is fairly simple. Simply calculate the yield on your current investments and then calculate the sum necessary to produce $50,000 of income. (see table below)
If the yield you receive on your investments is:
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%

You need this size portfolio to produce $50,000:
$500,000
$555,556
$625,000
$714,286
$833,334
$1,000,000
$1,250,000
$1,666,667
$2,500,000
$5,000,000
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When you finally get the appropriate level of income from an income producing source that grows at a rate equal to or greater than the rate of inflation, then you have arrived at your destination. You are now living the dream. You're financially free, financially secure, and you've earned the right to have a self directed life. 

Enjoy the freedom. 

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Emerson Electric Co

6/2/2014

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I like companies that have been producing sales and profits for a very long time and Emerson Electric Co has been doing just that for 124 years. I also like Dividend Aristocrats and this company is not only on that list but it has been increasing its dividend for 56 years so this puts it on the list of Dividend Kings too. 

Despite its recent sluggish growth, this company could soon be getting back on track for significant increases in 2014 and 2015. 
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  • Analyst's estimates have revenues and earnings improving in 2014 before significantly increasing in 2015.
  • The stock is consolidating after a nice run up in 2013 and any pullback could be a nice set up for an extended rise into the low to mid 70s.
  • Any investment decision today has to be based on the investing individual's confidence in the analyst's estimates going forward.



The Company
Emerson Electric Co. (EMR), a diversified technology company, designs and supplies products and technology, and delivers engineering services and solutions to the industrial, commercial, and consumer markets worldwide. Its Process Management segment offers customers products and technology, and engineering and project management services for precision measurement, control, monitoring, and asset optimization of oil and gas reservoirs and power generating plants, as well as for plants that process or treat food and beverages, pulp and paper, pharmaceuticals, municipal water supplies, and oil, natural gas, and petrochemicals. The company’s Industrial Automation segment provides integrated manufacturing solutions for products, including motors, drives, power generating alternators, power transmission solutions, fluid controls, and materials joining equipment. Its Network Power segment designs, manufactures, installs, and maintains products that offer electric power conditioning, power reliability, environmental control for telecommunications networks, data centers, and other critical applications, as well as comprehensive data center infrastructure management solutions. The company’s Climate Technologies segment provides products and services for various areas of the climate control industry, such as residential heating and cooling, commercial air conditioning, commercial and industrial refrigeration, and marine controls. Its Commercial and Residential Solutions segment offers a range of professional and do-it-yourself tools, fixed and mobile storage products, and appliances and components. The company was formerly known as The Emerson Electric Manufacturing Company and changed its name to Emerson Electric Co. in 2000. Emerson Electric Co. was founded in 1890 and is headquartered in St. Louis, Missouri. (Daily Chart) (Weekly Chart)

1 June 2014
Price  $66.73
1yr Target  $73.04
Analysts  23
1yr Cap Gain  9.46%
Dividend  $1.72
Yield  2.58%
1yr Tot Return  12.04%
3yr DGR  7.05%
5yr DGR  6.17%
Payout Ratio  60.14%

Beta  1.37
EPS (ttm)  $2.81

EPS next yr  $4.20
P/E  23.75
PEG  2.44
ROA  8.30%
ROE  19.10%



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Emerson was established in 1890 in St. Louis, Missouri as Emerson Electric Manufacturing Co. by Civil War Union veteran John Wesley Emerson to manufacture electric motors using a patent owned by the Scottish-born brothers Charles and Alexander Meston. In 1892, it became the first company to sell electric fans in the United States. It quickly expanded its product line to include electric sewing machines, electric dental drills, and power tools.

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Today Emerson Electric Co is made up of the following 5 platforms: Emerson Process Management, Emerson Industrial Automation, Emerson Network Power,  Emerson Climate Technologies, Emerson Commercial & Residential Solutions, and it's businesses are comprised of hundreds of brands. It's a great American company and it's on the list of Dividend Aristocrats. 



The Fundamentals
Looking at the last 10 years of the fundamentals of the company (see the chart below), it shows that the company's revenues were affected by the recession that occurred during 2009-2010. But once the country made it through this tragic economic event revenues began to get back on track. Estimates have revenues increasing 0.60% in 2014 and 4.99% in 2015. Earnings, on the other hand, have a much more spotty record. Earnings increased until 2008 and then began to fall shortly after. They didn't fully recover until 2011 and then fell once again. Today earnings still haven't recovered to the level of 2011 but estimates have them increasing 35.86% to $3.75 in 2014 and another 12.00% to $4.20 in 2015.

Dividends, however, continued at a more stable and steady rate increase during each of these 10 years by management allowing the payout ratio to vary between approximately 40% and 60%. Assuming earnings increase as analysts estimate and the dividends continue to grow at approximately 7% per year, the payout ratio will fall back to the lower end of this range once again thus insuring that dividends will continue well into the future.


Year
2015 Est
2014 Est
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
Revenues
$26.06 Bil
$24.82 Bil
$24.66 Bil
$24.41 Bil
$24.22 Bil
$21.03 Bil
$20.10 Bil
$24.80 Bil
$22.57 Bil
$20.13 Bil
$17.30 Bil
$15.61 Bil
$13.95 Bil

Earnings
$4.20
$3.75
$2.76
$2.67
$3.27
$2.84
$2.27
$3.06
$2.66
$2.24
$1.70
$1.49
$1.29
Dividends
$1.90
$1.77
$1.66
$1.61
$1.43
$1.35
$1.32
$1.23
$1.08
$0.89
$0.84
$0.80
$0.78
Payout Ratio
45.23%
47.20%
60.14%
60.29%
43.73%
47.53%
58.14%
40.19%
40.60%
39.73%
49.41%
53.69%
60.46%

Revenue growth rates have traditionally been in the area of 5% but it can be seen that this rate was significantly affected by the recent recession. Looking at the estimates above it appears that revenue growth rates may once again be moving back to this level as the company moves forward into 2014 and 2015. Earnings growth rates have obviously been affected more severely by the recession than revenues but once again, based on analysts estimates these are likely to be returning to the earlier growth rate of 7% as the company approaches 2015.

Dividend growth rates have remained stedy throughout this period due to management's decision to increase dividends and allow the payout ratio to expand. As earnings increase going forward it's expected that the payout ratio will decrease as dividends continue to increase.

Revenues Growth Rates
3yr =  5.39%
5yr =  -0.12%
10yr = 5.86%

Earnings Growth Rates   
3yr =  -0.84%
5yr =  -2.05%
10yr = 7.90%

Dividend Growth Rates   
3yr =  7.05%
5yr =  6.17%
10yr = 7.84%

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The Technicals
The technical indicators show price action that's simply going sideways. The RSI is located almost dead center at the centerline. The MACD is beginning to hug the centerline which also tells me this company is consolidating near its present price level prior to another move up. The ADX is telling me that there isn't any pressure right now to move this stock either up or down, confirming that consolidation is occurring. 

None of this is surprising to the technical analysts when looking at the weekly chart. The stock made a nice movement up in 2013 of about 20% so it's natural that it may have gotten ahead of itself. A period of consolidation is well deserved after that kind of move. Its P/E ratio has also risen to around 24 and at that level there just isn't going to be a lot of buyers coming in to buy this stock. 


If the technicals are the best source of determining the best buying price, the momentum indicators are telling me that there just doesn't seem to be a hurry to buy this stock at this price. A small pullback would greatly enhance all the momentum indicators.

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Daily Chart
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Weekly Chart


The Competition
Emerson Electric Co is part of the Industrial Electrical Equipment Industry which is part of the Industrial Goods Sector of the economy. Below are a few of the major corporations included in this industry. They are listed in the order of their market capitalization.
  1. Emerson Electric Co
  2. AO Smith Corp  (AOS)
  3. Spectrum Brands Holdings, Inc  (SPB)
  4. EnerSys  (ENS)
  5. Belden, Inc  (BDC)
  6. Franklin Electric Co, Inc  (FELE)
  7. GrafTech International Ltd  (GTI)
  8. OSI Systems, Inc  (OSIS)
  9. Altra Holdings, Inc  (AIMC)


Conclusion
This stock is a tough call. Any decision has to be based on the amount of confidence the interested investor has in the analyst's estimates. At the current price of $66.73 and a target price of $73.04, this stock has the potential to increase by 9.46% this year. Unfortunately targets are estimates and any fall in that target will greatly reduce that gain very quickly. It's reassuring to know that the target price is an average of 23 analysts but I'm a conservative investor and I realize that it's just a target and not a guarantee. 

Since the lower Bollinger Band sits at $65.52 I will look to put a buy in for this stock at this lower level. This is 11.47% below the target price and still allows for a ten percent one year capital gain if the stock only rises to a price of $72.00. Adding in a dividend that yields 2.58% increases the total return to 12.58% on the reduced target. 

A price of $65.52 would also reflect a P/E ratio of 17.47 based on 2014 estimated earnings and just 15.60 based on 2015 estimates. In addition, based on the dividend estimate of $1.90 in 2015, the yield on cost will be 3.35%. 

These are very desirable numbers. 

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    I am an Individual Investor with specific interest in long term growth and then enhancing my returns with income from dividends and derivatives. I don't recommend stocks to anyone (it's a good way to lose friends) and no one reading this should misinterpret my blog as a recommendation for any type of investment. I am writing this solely for myself and my kids.


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