Lets look at APPLE 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.
Apple trades on the Nasdaq under the symbol (AAPL). AAPL has been a publicly traded company for more than 10 years and its products are known world wide.
By estimating future earnings you can determine its share price. AAPL has an "over active" average annual earnings growth of 62.33% (past 14 years). For the purposes of this analysis I am capping it at a 20% increase to determine what AAPL should be valued at. In this case AAPL should earn about $33.22 in 2012.
For the past 3 years AAPL has had an average P/E trading range of 18.53 (high) and 10.17 (low). Over a longer term AAPL had a average P/E ratio of 36.18(high) and 17.08(low) over the past 14 years. AAPL has also had some wild swings in the past, for example P/E values in 2002 AAPL had a high P/E ratio of 93.50 and a few years of zero for its P/E ratio.
Using the average 3 year P/E and the capped earnings it is estimated that the trading range should be $615.60 (high) and $337.70 (low).
If you are a strong believer that AAPL is going to get another year of 60% earning growth then AAPL could earn as much as 44.29 per share. In that case AAPL share price range would be
$820.80(high) and $450.26(low)
AAPL has begun to issue dividends starting this next quarter.
AAPL has increased its CF/S by 218% over the past 14 years and slowed down a little in the past 3 years, where it managed to maintain an average growth of 71.2%. I am going to cap the rate at 20% in 2012 to 35.82 per share. AAPL’s 14 year P/CF ratio is 27.23(high) and 12.64(low) however the three year average gives a better picture with 17.05(high) and 9.36(low) which offers a better platform to determine the future price.
The price per cash flow ratio (P/CF) ratio and multiplying it to the CF/S this gives me a share price range of $610.41(high) and $335.33(low) with a current P/CF of 17% implies that AAPL is nearly fairly priced at this point.
Sum up
Current price, $606.94
EPS range $615.60 to 337.70
D/S range not available
CF/S range $610.41 to 335.33
Now on to how to trade, if I am looking to purchase shares of AAPL I would be writing a put at my price estimates. In this case, I would write a Put Option at $340 on the www.cboe.com and the contract would look like, sell 1 October 2012 Put contract for the 340 strike price and collect the premium of $2.75 /share.
If your wondering on what the return would be? 34000 /275 = .80% at an annual rate of 1.06% it would be better to leave it in a GIC as it’ll payout a better rate of return.
Tuesday, March 20, 2012
Tuesday, March 13, 2012
Lets look at Visa (V) 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.
V trades on the NYSE and has been a publicly traded company for about 5 years. Visa is a credit card processing company.
Since Visa is a newly public company so for the numbers will reflect this point. So here we go: for the past 3 years V has had an average P/E trading range of 24.41 (high) and 14.25 (low).
V also has had some wild swings in its past with P/E values having a high of 93.58.
V has over time has had an average annual Earnings growth of 29.02% . Knowing or at least estimating future earnings you can estimate the share price. In this case V should earn about $6.20 in 2012 and multiply the average P/E, gives the estimated trading range for Vise 151.12 (high) and 88.23 (low).
If your wondering about dividend growth? Yes V has had growth in that area as well.
For the past few years V has increased its dividends by more then 8 fold in the past 5 years.
There is no indication that V won’t continue to paying out more dividends going forward. In fact it is expected that V will increase its dividend by 15% in 2013 to 1.02 per share from its current amount of .88 per share.
Looking at the price per dividend rate (P/D) V has a range of .52(high) and .89 (low) with a current .80% implies that V is fairly prices at this point based on last years P/D. However if you are wondering what the price range is, look at the dividend ratio for 2013 should support a price range of 168.94 (high) and 99.08 (low)
Now on to how to trade, as I’m looking to purchase shares of V so I’ll be writing a put at my price estimates in this case I’m looking to write a Put Option at $80 on the www.cboe.com . So I’m looking to sell 10 September 2012 Put contracts for the 80 strike price and collect the premium of 1.10 per share.
If your wondering on what the return would be? 80000/1100 = 1.375%
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.
V trades on the NYSE and has been a publicly traded company for about 5 years. Visa is a credit card processing company.
Since Visa is a newly public company so for the numbers will reflect this point. So here we go: for the past 3 years V has had an average P/E trading range of 24.41 (high) and 14.25 (low).
V also has had some wild swings in its past with P/E values having a high of 93.58.
V has over time has had an average annual Earnings growth of 29.02% . Knowing or at least estimating future earnings you can estimate the share price. In this case V should earn about $6.20 in 2012 and multiply the average P/E, gives the estimated trading range for Vise 151.12 (high) and 88.23 (low).
If your wondering about dividend growth? Yes V has had growth in that area as well.
For the past few years V has increased its dividends by more then 8 fold in the past 5 years.
There is no indication that V won’t continue to paying out more dividends going forward. In fact it is expected that V will increase its dividend by 15% in 2013 to 1.02 per share from its current amount of .88 per share.
Looking at the price per dividend rate (P/D) V has a range of .52(high) and .89 (low) with a current .80% implies that V is fairly prices at this point based on last years P/D. However if you are wondering what the price range is, look at the dividend ratio for 2013 should support a price range of 168.94 (high) and 99.08 (low)
Now on to how to trade, as I’m looking to purchase shares of V so I’ll be writing a put at my price estimates in this case I’m looking to write a Put Option at $80 on the www.cboe.com . So I’m looking to sell 10 September 2012 Put contracts for the 80 strike price and collect the premium of 1.10 per share.
If your wondering on what the return would be? 80000/1100 = 1.375%
Lets look at Bank of Nova Scotia (B.N.S.) trades on both the TSX and NYSE.
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.
B.N.S. for the past 16 years has had an average P/E trading range of 14.39 (high) and 9.48 (low) after removing a couple of year due to non company earnings.
B.N.S. also had some wild swings in the past, P/E value for example in 2008 B.N.S. had a high P/E ratio of 20.55 and a really low P/E ratio of 5.8 in 2009.
B.N.S. has over that time have had an average annual Earnings growth of 21.1% . Knowing or at least estimating future earnings you can estimate the share price. In this case B.N.S. should earn about $5.09 in 2012 and using the average P/E the estimated trading range should be 73.22 (high) and 48.26 (low).
If your wondering about dividend growth? Yes B.N.S. has had growth in that area as well.
For the past 16 years (16 years average) B.N.S. has increased its dividend per share by more then 4 fold in the past decade.
There is no indication that B.N.S. won’t continue to paying out more dividends going forward. In fact it is expected that B.N.S. will increase its dividend between 4 and 6% in 2012 to an estimated amount of 2.15 per share.
For Dividends you can look at the average rate per share (P/D)as well to determine the future share price. For the past 17years B.N.S. had a P/D of 3.51 (high) and 5.4 (low) with a current P/D of 4.09% is a little below the average mean.
At todays price of $53.85 makes it look like a hold/ low buy ! I am looking for a pull back in the share price as we head into the summer.
Now on to how to trade, as I’m looking to purchase more shares of B.N.S. as my current average is $52 per share.
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 at $60 and a Put Option at $45 on the CBOE, www.cboe.com. In this case I’m looking to sell in around the quarterly mark. So I’m looking to sell 10 June 2012 Put at $45 contracts for .85 per share and sell 20 Call at $60 contracts for September 2012 and collect the premium of .60 per share
If your wondering on what the return would be? For the time period on this option trade works out to be Puts = $850 plus Calls $1200 for a total of $2050 and both expire in June. Before commish.
Plus dividends $1040 and growth up to the $60 mark.
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.
B.N.S. for the past 16 years has had an average P/E trading range of 14.39 (high) and 9.48 (low) after removing a couple of year due to non company earnings.
B.N.S. also had some wild swings in the past, P/E value for example in 2008 B.N.S. had a high P/E ratio of 20.55 and a really low P/E ratio of 5.8 in 2009.
B.N.S. has over that time have had an average annual Earnings growth of 21.1% . Knowing or at least estimating future earnings you can estimate the share price. In this case B.N.S. should earn about $5.09 in 2012 and using the average P/E the estimated trading range should be 73.22 (high) and 48.26 (low).
If your wondering about dividend growth? Yes B.N.S. has had growth in that area as well.
For the past 16 years (16 years average) B.N.S. has increased its dividend per share by more then 4 fold in the past decade.
There is no indication that B.N.S. won’t continue to paying out more dividends going forward. In fact it is expected that B.N.S. will increase its dividend between 4 and 6% in 2012 to an estimated amount of 2.15 per share.
For Dividends you can look at the average rate per share (P/D)as well to determine the future share price. For the past 17years B.N.S. had a P/D of 3.51 (high) and 5.4 (low) with a current P/D of 4.09% is a little below the average mean.
At todays price of $53.85 makes it look like a hold/ low buy ! I am looking for a pull back in the share price as we head into the summer.
Now on to how to trade, as I’m looking to purchase more shares of B.N.S. as my current average is $52 per share.
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 at $60 and a Put Option at $45 on the CBOE, www.cboe.com. In this case I’m looking to sell in around the quarterly mark. So I’m looking to sell 10 June 2012 Put at $45 contracts for .85 per share and sell 20 Call at $60 contracts for September 2012 and collect the premium of .60 per share
If your wondering on what the return would be? For the time period on this option trade works out to be Puts = $850 plus Calls $1200 for a total of $2050 and both expire in June. Before commish.
Plus dividends $1040 and growth up to the $60 mark.
Monday, March 5, 2012
update for Royal Bank
Lets look at Royal Bank of Canada (RY) trades on both the TSX and NYSE.
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.
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 years due to non company earnings issues.
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 for the 1st quarter. My estimates have now been changed too suit.
First let me get past the dividend questions and ranges:
If your wondering about dividend growth? Yes RY has had growth in that area as well.
For the past 16 years (16 years average) RY has increased its dividends by more then 10 fold.
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. As expected RY has increased its dividend. !
RY has raised its dividend starting 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).based on dividend stats*
RY has over that time have had an average annual Earnings growth of 19.74% . Knowing or at least 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). RY's 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
At todays price makes this stock looks like a hold/ low buy ! I'd be happier to buy it under to $54 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 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
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.
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 years due to non company earnings issues.
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 for the 1st quarter. My estimates have now been changed too suit.
First let me get past the dividend questions and ranges:
If your wondering about dividend growth? Yes RY has had growth in that area as well.
For the past 16 years (16 years average) RY has increased its dividends by more then 10 fold.
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. As expected RY has increased its dividend. !
RY has raised its dividend starting 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).based on dividend stats*
RY has over that time have had an average annual Earnings growth of 19.74% . Knowing or at least 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). RY's 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
At todays price makes this stock looks like a hold/ low buy ! I'd be happier to buy it under to $54 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 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
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