Lets look at Royal Bank of Canada (RY) today.
This posting is open for discussion and to determine the entry and exit price points by using 3 different methods. These three methods use the historical P/E, CF/S and the dividend (D/S) ratios. Please note that there is a ton of ratios out there.
Definitions of the following terms used:
P/E. Price divided by its earnings, which shows what multiple that a investor is willing to pay for $1 dollar of earnings.
http://www.investopedia.com/terms/p/price-earningsratio.asp#axzz1ywxwNlkP
CF/S is the same as earnings except that its referring to the company’s ability to generate cash.
http://www.investopedia.com/terms/c/cashflowpershare.asp#axzz1ywxwNlkP
D/S or Dividend per share. For this ratio you would use the dividend yield formula.
http://www.investopedia.com/university/ratios/investment-valuation/ratio7.asp#axzz1ywxwNlkP
Using these historical ratios a person can estimate what the stock price range should be.
By comparing the 3 year average vs a longer term (10 year average or more) can also help to determine where the market believes the company is in its life cycle, which includes: start up (venture), growth or mature company.
The Royal Bank trades on the TSX and on the big board the NYSE under the symbol of (RY). RY has been a publicly traded company for more 10 years, RY in the largest bank in Canada and has operations in the USA and the Caribbean.
RY for the past 16 years has had an average P/E trading range of 16.12 (high) and 11.9 (low) after removing a couple of year due to non company earnings.
RY also has had some wild swings in the past, P/E value for example in 2009 RY had a high P/E ratio of 24.48 and a really low P/E ratio of 7.29 in 1996.
Update with RY’s earnings update for the 1st quarter. My estimates have now been changed a little.
If your wondering about dividend growth? Yes RY has had growth in that area as well.
RY has increased its dividends by more then 10 fold in the past decade.
There is no indication that RY won’t continue to paying out more dividends going forward. In fact it is expected that RY will increase its dividend by 5.5% in 2012 to 2.20 per share.
RY has raised it dividend again this quarter by 6% which is now .57 per quarter.
Looking at the level of support that the dividend can provide. Before the 6% increase people were willing to pay 69.58 (H) to 50.98(L). Now the Price support averages should be around 72.11 (H) and 52.83 (L).
At todays price of $55.90 makes it look like a hold/ low buy ! The listed option trades are still valued are in the correct ranges.Now on to how to trade, as I’m looking to purchase more shares of RY I’ll be writing a put at my price estimates in this case I’m looking to write a spread which is both the Call and a Put Option at $54 on the Montreal exchange www.m-x.ca . It would be best to sell the put for the shortest term as possible. So I’m looking to sell 10 March 2012 put contracts for 54 and collect the premium of .30 per share.
Since I own 2100 shares of RY at an average price of $56 per share I’m going to write a covered call as well in this case and I’m going to split the position into 2 groups. So I’m going to write the April 56 calls for a premium of .85 cents and the October 58 at 1.65 per share.
If your wondering on what the return would be? For the next 17 days til the Puts expiry will net you .555% per share. 54000/300
For the two calls. The first batch is 10 April contracts at 56 for .85 per share. Works out to be 1.52% Plus any dividends. And the October 58 Contracts for 1.65 per share works out to be 2.95% plus dividends. For a Total collected today $2800.00
based on dividend stats*Over the 16 year period RY has managed to increase its annual Earnings growth averaging 19.74% . By estimating future earnings you can estimate the share price. In this case RY should earn about $5.36 in 2012 (we’ll change this amount to $3.87) and using the average P/E the estimated trading range should be 83.25 (high) and 65.93 (low). It future estimated range is now 60.01 (High) and 47.53 (low). RY at the moment is NOT a growth stock, it is possible that it’ll get back to a growth position in 2014
Wednesday, February 29, 2012
Wednesday, February 22, 2012
Lets look at Canadian Natural Resources (CNQ) today.
This posting is open for discussion and to determine the entry and exit price points by using 3 different methods. These three methods use the historical P/E, CF/S and the dividend (D/S) ratios but there are a number of ratios available.
Definitions of the following terms used:
P/E or price divided by its earnings. Shows what multiple that a investor is willing to pay for $1 dollar of earnings.
http://http:www.investopedia.com/terms/p/price-earningsratio.asp#axzz1ywxwNlkP
CF/S or cash flow per share. This is the same as earnings except that its referring to the company’s ability to generate cash.
http://www.investopedia.com/terms/c/cashflowpershare.asp#axzz1ywxwNlkP
D/S or dividend per share. For this ratio you would use the dividend yield formula.
http://www.investopedia.com/university/ratios/investment-valuation/ratio7.asp#axzz1ywxwNlkP
Using these historical ratios a person can estimate what the stock price range should be.
By comparing the 3 year average vs a longer term (10 year average or more) can also help to determine where the market believes the company is in its life cycle, which includes: start up (venture), growth or mature company.
CNQ trades on the TSX and on the NYSE and has been a publicly traded company for more than 10 years. CNQ is a Oil and gas exploration company with operations in Canada, the North Sea and in Africa.
Starting with CF/S. CNQ has had a 15 year average annual CF/S growth rate of 32.97% and 25% average over the last 3 year period. CNQ also had for the past 15 years, an average P/CF trading range of 9.3 (high) and 4.8 (low) with some wild swings in the past. P/CF values in 1996 as CNQ had a high P/CF ratio of 18.24 and a really low P/CF ratio in the year 2003 at 1.77.
By estimating future CF/S one can estimate future share price. In this case CNQ should earn about $6.3 in 2012 and using the average CF/S the estimated trading range should be $58.60 (high) and $30.52 (low)
What about dividend growth? CNQ has had growth in this area as well.
CNQ has increased its dividends by about 29% annually in the past decade and 22.6% annually over the last 3 years. There is no indication that CNQ won’t continue to be paying out more dividends going forward.
For years CNQ had bounced around the 1% mark as a dividend percentage.
It is estimated that CNQ will increase its dividend again in 2012 to .40 from .36 (2011).
CNQ’s 3 year yield range is .64 (high) and 1.28(low) and its 10 year average range of .62(high and 1.21(low)
The Dividend should support a share price of $55.90 (high) and $28.14 (low). Current price of $27.76 and a yield of 1.512%, puts it into the buy range.
Looking from the P/E side. CNQ for the past 15 years has had an average P/E trading range of 19.91 (high) and 9.85 (low). However if we look at the past 3 years the averages have increased showing a 23.51 (high) and 10.88 (low)
So looking at the price range CNQ should earn about $2.24 in 2012 which is 20% higher than 2011. By using the average P/E the estimated trading range should be $62.90 (high) and $35.94 (low)
At todays price of $27.76 it looks like a buy !
Sum up; Current price $27.76
P/E, low estimated price $35.94
D/P, support price is $28.14
CF/S support price is $30.52
How to trade? If I’m looking to purchase CNQ I’ll be writing a put at my price estimate. In this case I’m looking to write the Put Option at $36 on the CBOE . It would be best to sell the put for as short a term as possible. So I’m looking to sell the March 2012 put at 36 for .75 per share.
Return on cash? For the next 25 days til its expiry will net you 2.08% per share.
This posting is open for discussion and to determine the entry and exit price points by using 3 different methods. These three methods use the historical P/E, CF/S and the dividend (D/S) ratios but there are a number of ratios available.
Definitions of the following terms used:
P/E or price divided by its earnings. Shows what multiple that a investor is willing to pay for $1 dollar of earnings.
http://http:www.investopedia.com/terms/p/price-earningsratio.asp#axzz1ywxwNlkP
CF/S or cash flow per share. This is the same as earnings except that its referring to the company’s ability to generate cash.
http://www.investopedia.com/terms/c/cashflowpershare.asp#axzz1ywxwNlkP
D/S or dividend per share. For this ratio you would use the dividend yield formula.
http://www.investopedia.com/university/ratios/investment-valuation/ratio7.asp#axzz1ywxwNlkP
Using these historical ratios a person can estimate what the stock price range should be.
By comparing the 3 year average vs a longer term (10 year average or more) can also help to determine where the market believes the company is in its life cycle, which includes: start up (venture), growth or mature company.
CNQ trades on the TSX and on the NYSE and has been a publicly traded company for more than 10 years. CNQ is a Oil and gas exploration company with operations in Canada, the North Sea and in Africa.
Starting with CF/S. CNQ has had a 15 year average annual CF/S growth rate of 32.97% and 25% average over the last 3 year period. CNQ also had for the past 15 years, an average P/CF trading range of 9.3 (high) and 4.8 (low) with some wild swings in the past. P/CF values in 1996 as CNQ had a high P/CF ratio of 18.24 and a really low P/CF ratio in the year 2003 at 1.77.
By estimating future CF/S one can estimate future share price. In this case CNQ should earn about $6.3 in 2012 and using the average CF/S the estimated trading range should be $58.60 (high) and $30.52 (low)
What about dividend growth? CNQ has had growth in this area as well.
CNQ has increased its dividends by about 29% annually in the past decade and 22.6% annually over the last 3 years. There is no indication that CNQ won’t continue to be paying out more dividends going forward.
For years CNQ had bounced around the 1% mark as a dividend percentage.
It is estimated that CNQ will increase its dividend again in 2012 to .40 from .36 (2011).
CNQ’s 3 year yield range is .64 (high) and 1.28(low) and its 10 year average range of .62(high and 1.21(low)
The Dividend should support a share price of $55.90 (high) and $28.14 (low). Current price of $27.76 and a yield of 1.512%, puts it into the buy range.
Looking from the P/E side. CNQ for the past 15 years has had an average P/E trading range of 19.91 (high) and 9.85 (low). However if we look at the past 3 years the averages have increased showing a 23.51 (high) and 10.88 (low)
So looking at the price range CNQ should earn about $2.24 in 2012 which is 20% higher than 2011. By using the average P/E the estimated trading range should be $62.90 (high) and $35.94 (low)
At todays price of $27.76 it looks like a buy !
Sum up; Current price $27.76
P/E, low estimated price $35.94
D/P, support price is $28.14
CF/S support price is $30.52
How to trade? If I’m looking to purchase CNQ I’ll be writing a put at my price estimate. In this case I’m looking to write the Put Option at $36 on the CBOE . It would be best to sell the put for as short a term as possible. So I’m looking to sell the March 2012 put at 36 for .75 per share.
Return on cash? For the next 25 days til its expiry will net you 2.08% per share.
Tuesday, February 7, 2012
Today lets look at Goldcorp (G-T or GG-N).
For discussion and to determine the entry and exit points.
By using the historical P/E ratio one can determine what the entry and exit positions should be.
G for the past 10 years has had an average P/E trading range of 32.64 (high) and 23.42 (low).
G also has had some wild swings in the past, P/E value for example in 2004 G had a high P/E ratio of 64.44 and a really low P/E ratio of 9.3 in 2001 .
As this extra large range has been removed to smooth out the ratio a bit. So using the past 3 years the average P/E 22.26 (high) and 18.41 (low) was used. Now your wondering why I don’t use the CF/E well, I did it is very close to the same ratio.
G has over that time had an average annual EPS growth well over 20% when averaged over the years. Knowing or at least estimating future earnings one can estimate future share price. In this case G should earn about $2.53 in 2012 and using the average P/E the estimated trading range should be 56.36 (high) and 46.60 (low)
If your wondering about dividend growth? Yes G has had growth in that area as well.
For the past 11 years (3 years average) G has increased its dividends by more than 20%.
It should be noted that G has had growth spurts in dividend increases and not in steady increases.
For years G hovered around the 1% mark on the dividends since 2001. Since G has been returning a small portion of its earning back to its share owners with todays P/D G has had a low for 2011 of .77% and a high of .82% it is estimated that G will increase its dividend in 2012 to 48 cents from 37 cents (2011).
Now on to how to trade, As I already own 1000 shares of G (38.65) I’ll be writing a call at my price estimates in this case I’m looking to write the Call Option at $56. It would be best to sell the call for a shortest term possible. With a current price of $47.33 the option price of 56 is far out of the money and since G trades on the Montreal (M-X) and the CBOE exchanges the prices can vary.
The M-X for July call at 56 is $1.09 per share and the CBOE July calls for 57.50 with a premium of $1.10
For me the CBOE’s contract for 57.5@ 1.10 would be the best price.
If you are wondering about what the returns would be as of July (assuming) not called away it would be 2.85% , if called away it would be (in my case) 51.58% and both before commissions deducted.
I’d be using caution here as I believe that the general market is going to do a pull back. I suspect that will decline until the first week of April and that would possibly be the best time to sell this company closer to its higher price range.
For discussion and to determine the entry and exit points.
By using the historical P/E ratio one can determine what the entry and exit positions should be.
G for the past 10 years has had an average P/E trading range of 32.64 (high) and 23.42 (low).
G also has had some wild swings in the past, P/E value for example in 2004 G had a high P/E ratio of 64.44 and a really low P/E ratio of 9.3 in 2001 .
As this extra large range has been removed to smooth out the ratio a bit. So using the past 3 years the average P/E 22.26 (high) and 18.41 (low) was used. Now your wondering why I don’t use the CF/E well, I did it is very close to the same ratio.
G has over that time had an average annual EPS growth well over 20% when averaged over the years. Knowing or at least estimating future earnings one can estimate future share price. In this case G should earn about $2.53 in 2012 and using the average P/E the estimated trading range should be 56.36 (high) and 46.60 (low)
If your wondering about dividend growth? Yes G has had growth in that area as well.
For the past 11 years (3 years average) G has increased its dividends by more than 20%.
It should be noted that G has had growth spurts in dividend increases and not in steady increases.
For years G hovered around the 1% mark on the dividends since 2001. Since G has been returning a small portion of its earning back to its share owners with todays P/D G has had a low for 2011 of .77% and a high of .82% it is estimated that G will increase its dividend in 2012 to 48 cents from 37 cents (2011).
Now on to how to trade, As I already own 1000 shares of G (38.65) I’ll be writing a call at my price estimates in this case I’m looking to write the Call Option at $56. It would be best to sell the call for a shortest term possible. With a current price of $47.33 the option price of 56 is far out of the money and since G trades on the Montreal (M-X) and the CBOE exchanges the prices can vary.
The M-X for July call at 56 is $1.09 per share and the CBOE July calls for 57.50 with a premium of $1.10
For me the CBOE’s contract for 57.5@ 1.10 would be the best price.
If you are wondering about what the returns would be as of July (assuming) not called away it would be 2.85% , if called away it would be (in my case) 51.58% and both before commissions deducted.
I’d be using caution here as I believe that the general market is going to do a pull back. I suspect that will decline until the first week of April and that would possibly be the best time to sell this company closer to its higher price range.
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