Archive for the ‘Dividend Income’ Category

6 Highly Rated High Quality Equity Income Stocks

Thursday, July 18th, 2013

SUMMARY

As of 07/18/2013, there are only 6 stocks traded in the US that have these attributes:

  • highly rated for fair value
  • highly rated for year ahead expected performance
  • highly rated for earnings and dividend quality
  • yield greater than that of the S&P 500
  • paid and increased dividend for at least 5 years
  • technical condition is neutral to attractive

Suitability

This commentary is intended to be suitable for those portfolios that are required to seek consistent long-term growth of above average equity income, and for that income to be an important part of the overall total return due to approaching or current withdrawal requirements; and for which achievement of the income objective is more important than exceeding the total return of a broad equity index.

This commentary is not intended to be suitable for those portfolios for which maximizing price appreciation and exceeding broad index total returns is the primary objective. Neither is this commentary suitable for those portfolios engaged in short-term trading activities.

Each portfolio should be designed and operated to meet the real world needs and purposes for which it is intended.

SIMPLE STANDARD & POOR’S FILTER

32 stocks passed this filter:

• Fair Value rated 4 or 5
• Stars rated 4 or 5
• Earnings & Dividend Quality rated A+, A or A-

DIVIDEND CONSISTENCY & GROWTH FILTER

20 of the 32 stocks passed this filter:

• paid dividends for each of at least the past 5 years
• increased dividend payments in each year

ABOVE AVERAGE YIELD FILTER

11 of the 20 stocks passed this filter:

• yield greater than the yield on the S&P 500

SHORT-TERM TECHNICAL FILTER

6 of the 11 stocks passed this filter:

• BarChart net rating >= 50% BUY

STOCKS SURVIVING FILTERS

The 6 surviving stocks are:

  • (K) Kellog
  • (UTX) United Technologies
  • (AFL) Aflac
  • (TGT) Target
  • (BAX) Baxter International
  • (SU) Suncor

YIELDS

Unfortunately for many (most?) dividend income seekers, none of these stocks have high yields — just above index yields. However, that’s the best you can do if you also want or need the stringent S&P filter terms. Highest quality stocks have been bid up so that high yield is not generally available among them at this time.

Name Symbol Yield
KELLOGG CO K 2.66
UNITED TECHNOLOGIES UTX 2.12
AFLAC AFL 2.37
TARGET TGT 2.37
BAXTER INTERNATIONAL BAX 2.68
SUNCOR ENERGY SU 2.46

STOCK CHARTS WITH WRIGHT RATINGS

The charts below show the 5-year history of price, earnings and dividends for each stock.

Charts and ratings were obtained by subscription at the premium side of CorporateInformation (a description of Wright ratings is at our blog).

In brief, the three alpha Wright ratings are for liquidity, financial strength and profitability; and the numeric rating is for multi-factor growth on a 20 point scale.

K (rated ABA7)

UTX (rated ABA8)

AFL (rated AAA14)

TGT (rated ABA9)

BAX (rated ABA12)

SU (rated AAB7)

ANALYST RATINGS

This table shows the number of reporting analysts and the high and low and average year ahead price change projections.

# Analysts Symbol % to Hi % to Av % to Lo
21 K 12.0 (1.0) (17.0)
24 UTX 14.0 3.2 (17.0)
23 AFL 27.0 5.9 (6.8)
23 TGT 14.0 1.2 (15.0)
19 BAX 12.0 3.9 (34.0)
21 SU 47.0 2.0 (9.4)

DIVIDEND GROWTH RATES

Here are the 5-year and 1-year dividend growth rates for the 6 stocks.

Symbol 5yr DGR 1Yr DGR
K 7.26 2.33
UTX 10.83 11.46
AFL 7.84 6.06
TGT 25.16 43.33
BAX 17.64 46.27
SU 31.95 53.85

REVENUE GROWTH RATES

Dividends can’t grow forever unless revenue grows too.

There is significant concern these days about weak revenue growth in general, with concerns about the ability of companies to maintain margins (and ultimately dividends) without good growth.

Here are the 5-year, 3-year and 1-year revenue growth rates for the 6 stocks.

Symbol 5yr RGR 3Yr RGR 1Yr RGR
K 3.81 4.13 11.14
UTX 1.19 2.99 7.56
AFL 10.50 11.62 8.75
TGT 2.96 3.90 3.31
BAX 4.73 4.15 1.81
SU 18.00 19.60 (0.50)

These stocks may not be right for you, but having passed a rigorous set of filters, they may provide a rational set of leads for further research for the Do-It-Yourself equity income investor.

 

 

S&P 500 Total Return vs. Price Return: 20, 10, 5 and 1 Years

Monday, June 17th, 2013

(click images to enlarge)

201051

Don’t Accept BuyBack Yield Argument Without Substantial Caveat

Friday, June 14th, 2013

BuyBack Yield is an interesting concept, and a useful tool as part of stock analysis.  However, it SHOULD NOT be used as a security selection or rejection criterion without interpretation with other data.    What seems good could be bad, and what seems bad could be good.

There are some advisors talking up BuyBack Yield as if it is some kind of new magic bullet for yield seekers.  Well we think it ain’t so.

It is a good idea for yield seekers to look for as much supplemental evidence of strength and shareholder reward as possible, and BuyBack Yield has a role in some cases as a preliminary indicator.  However, BuyBack Yield can just as easily mislead you as point you in the right direction unless it is accompanied by careful consideration of other fundamentals, as well as industry and company specifics.

BuyBack Yield simply measures the percentage change in outstanding shares over a period of time.

The argument for BuyBack Yield is that if a company is using earnings to purchase its own shares, it is concentrating earnings — in effect yielding earnings to shareholders more efficiently than shareholders could do by receiving dividends, paying taxes on them and then purchasing more of the company’s stock.

For dividend paying companies, a combination of dividends received and earnings accretion due to share buybacks creates an extra dose of value creation.  That is an appealing argument for what some call “Total Yield” (BuyBack Yield + Dividend Yield).

Certainly the idea warrants measuring BuyBack Yield and Total Yield, but the data must be taken into context to avoid undue positive or negative views of a stock, and to avoid ranking stocks by Total Yield in a way that is misleading.

How Might BuyBack Yield and Total Yield Be Misleading?

  • If a company issues shares to acquire another company, even if the acquisition is accretive to earnings, the BuyBack Yield is negative and the Total Yield is reduced and may be negative.  That would be misleading, unless you are simply opposed to acquisitions.
  • If a company issues shares to investors to raise more capital when the stock price is high, and the new capital is to be used for CapEx for business expansion, the BuyBack Yield is negative, but the implication may be positive.
  • If a company reduces its outstanding shares by a repurchase program when the stock valuation multiple is high, the BuyBack Yield is positive, but if the valuation multiple is unreasonably high and likely in your view to revert to a lower multiple, then that positive BuyBack calculation would be a false indication of a positive effect
  • If a company reduces its outstanding shares with a repurchase program, but at the same time awards executives boat loads of stock options, the intermediate-term to long-term value of the BuyBack Yield calculation could be very much in question
  • Companies that step in with both feet to buy shares in a down market are often making a good choice, but the short-term BuyBack Yield at that time cannot reasonably be projected into the future, and long-term average BuyBack Yield may be distorted by a recent spike in share purchases due to a market downturn.
  • BuyBack Yield based on the past 12 months (as is the case with the NASDAQ BuyBack Index) is far less useful than dividend yield as a long-term yield indicator, because share repurchase programs are often highly variable from year-to-year, whereas dividends have a far greater tendency to be carefully managed for consistency and growth.

You may be able to think of other examples.  The point is that dividends are what they are — cash in your hand, but BuyBack Yield may or may not be as good or as negative as a simple calculation and/or ranking would suggest.

We think BuyBack Yield is an interesting and useful tool, but one that must be taken in context of more information about why and how the BuyBack Yield came about.  We think just looking at the 12-month BuyBack Yield is particularly dangerous for yield seekers, and instead or in addition investors should also look at multi-year average BuyBack Yields.

EXAMPLE RAW DATA:

We identified the 135 stocks available in the USA as of 06/07/2013 with 3% or more in trailing yield, and 3% or more in dividend growth over the last 4 quarters, and also on average over 1, 2, 5 and 5 fiscal years.  Within than universe, we looked at 12-month and 5-year BuyBack Yield.

Seagate Technology (STX) has the highest 12-month BuyBack Yield at 19.7%, bringing the Total Yield to 23.2%.  But its 5-year BuyBack Yield is only 5.2% — still a nice number, but no where near 19.7%.

We would suggest a Total Yield of 8.7% is more reasonable than 23.2% for STX.  We have not research the why or how their repurchases took place, but with this data simply illustrate the importance of taking a longer view of share repurchase behavior.

Here is a chart from YCharts.com showing their trailing BuyBack Yield and dividend yield for the last 10-years — you can see the comparative irregularity of the BuyBack Yield versus the dividend yield:

img_1902

Along the same lines, Vodafone (VOD), which has a 5.3% dividend yield, has a 5.8% 12-month BuyBack Yield, but only a 1.5% 5-year BuyBack Yield.

On the other side of the question, Raytheon (RTN) has a 3% 12-month BuyBack Yield and a 5.3% 5-year BuyBack Yield.

Again, we have not researched the acquisition, CapEx, R&D, or options granting behavior of these companies; but we think the raw data shows the high variability of BuyBack Yield data over different time periods. That argues against the 12-month approach for long-term views, in our opinion.

Some companies that appear to show good consistency, such as Chevron (CVX), which has a 1.8% 12-month BuyBack Yield, and a 1.6% 5-year BuyBack Yield have nonetheless significant variability on a period-to-period basis, while their dividend yield shows comparatively high consistency.

img_1905

What about companies with large negative BuyBack Yields?  We don’t think it tells you that much with capital intensive companies.

Take Northeast Utilities (NU) for example.  They have a negative 77% 12-month BuyBack Yield, and a negative 14.1% 5-year BuyBack Yield, and a 3.5% dividend yield.  Assigning a negative 73.5% or negative 10.6% Total Yield to them seems rather useless.  By the nature of the industry, their BuyBack Yields would tend to be negative.

Of the 18 Utilities in the 135 stocks in our sample, only 3 have positive 12-month and 5-year BuyBack Yields.  Maybe they are doing well, or maybe they have declining demand, or are deferring CapEx. We would have to look into that, and in fact intend to do so; but overall utilities and BuyBack Yield may not go together well.

Those three positive BuyBack Yield utilities are: Wisconsin Energy Corporation (WEC), Alliant Energy Corporation (LNT) and Dominion Resources (D).  Their 10-year BuyBack Yields are shown in this chart:

img_1907

There is a slight difference in the data in our source database and the one used by YCharts, but the numbers are close enough for illustrative purposes.  Different databases almost always have some differences, and virtually all databases contain some errors, so don’t get too lathered up about small discrepancies, and before making final decisions check original sources.

Another interesting example is Enterprise Products Partners LP (EPD), the largest pipeline MLP.

Their dividend yield is about 4.4%. Their 12-month BuyBack Yield is positive 0.8%, but their 5-year BuyBack Yield is negative 38.4%.  Which would you use for Total Yield?

We wouldn’t use either one, because MLPs payout most of their cash flow and must either issue more shares or borrow more money to expand.  Eventually there are borrowing limits, and parent entities might typically take shares for asset “drop downs” into MLPs.  In any event, we don’t think BuyBack Yield is useful for companies like this.

img_1909

The same may be true for REITs.  Consider Digital Realty Trust (DLR), with a  negative 18.1% 12-month and negative 13.9% 5-year BuyBack Yield.  Equity REITs payout most of their cash flow and need to borrow or issue shares to expand.

img_1910

There are companies, though, where BuyBack Yield does make sense to us, and may help identify better opportunities.  Kimberly Clark (KMB), GlaxoSmithKline (GSK) and McDonalds (MCD), may be examples.  They have been reasonably consistent in their repurchases, but also stepped in big during the 2008 crash when they could buy earnings cheaply.

img_1908

BUYBACK ACHIEVERS ETF:

There is an ETF that focuses on the NASDAQ BuyBack Achievers index (based on trailing 12-months of outstanding shares data) PowerShares BuyBack Achievers Portfolio (PKW).  It has done very well, beating the S&P 500 (SPY) and the S&P 1500 High Yield Dividend Aristocrats (SDY).

That does not however, mean that BuyBack Yield is an effective universal tool to evaluate effective Total Yield to shareholders.  What it means is that recent strong share repurchases correspond to near-term subsequent price increases.  We give that approach full kudos, but we caution not to extrapolate that phenomenon to the yield seeking goal.  They are two different things.

To be eligible for inclusion in the index, a stock must have repurchased at least 5% of its outstanding shares in the past 12 months.  The index is rebalanced quarterly.

Here is price performance.  PKW wins.

img_1911

Here is the rate of change of dividend payment amounts for the ETFs.  The share repurchase criterion does not correspond to a superior rising dividend.

img_1913

CONCLUSION:

We recommend looking at BuyBack Yield as part of your stock evaluation process, but also looking past BuyBack Yield as to why and how it cam about before relying upon it as a yield seeking investor.

 

 

Chart Conditions for Most Heavily Traded Persistent, Consistent Dividend Payers

Thursday, May 16th, 2013

This table presents price chart conditions data for the 50 most heavily traded persistent, consistent dividend payers (based on the “Dividend Champions” list maintained by David Fish DripInvesting.org. Stocks on that list must have paid and increased dividends each years for at least 5 years.

(click image to enlarge)

04

 

All have prices at or above their 200-day moving average, except for CAT which is 1% below the average.  All except MSFT, INTC and OXY have positive 252-day linear regression slopes.  All except INTC show the last 10 days of the 200-day moving average to be tilted upward.  All but INTC, CAT,and YUM have positive 252-day price changes.  All but T, TGT, WMB, and DUK are up over the last 10 days.  Those at least 5% below their 252-day trailing high price are: CAT, INTC, FDX, YUM, IBM, and DE.

25 High Quality Dividend Growth Stocks With Highest Expected Year Ahead Total Return

Monday, April 22nd, 2013

We seek consistent, persistent dividend growth opportunities among high quality stocks. As part of our continuing search, we did this simple filter today to identify a field of stocks within which to look more deeply. This article shares the output of that filter, which you may find saves you time in your own opportunity search.

Different investors will come to different conclusions about which stocks are attractive and which are unattractive. At a minimum momentum oriented investors will find those stocks that have not moved much or that are well below their highs to be unattractive. Conversely, value investors may be attracted to some stocks that momentum investors would shun.

Here is what we required of companies:

  • S&P earnings and dividend quality A+, A, A- or B+
  • dividend yield >= 2.03 (the SPY yield)
  • 5-yr dividend growth rate >= 0
  • dividend paid and increased each year for at least 5 years

There were 164 companies that passed that test.

We then estimated a plausible year ahead total return by calculating the percentage price change required to reach the consensus year ahead average target price, and adding to that the current yield. No growth in the dividend was assumed in that summation.

Based on that calculation, the 25 stocks with the highest year ahead total return expectation are as follows (listed from highest to lowest):

(JCS) Communications Systems
(WEYS) Weyco Group Inc.
(MPR) Met-Pro Corporation
(CAT) Caterpillar Inc.
(ACU) Acme United Corp.
(PBI) Pitney Bowes Inc.
(OXY) Occidental Petrol
(RBCAA) Republic Bancorp
(NRP) Natural Resources
(DGAS) Delta Natural Gas
(NUS) Nu Skin Enterpris
(MDP) Meredith Corp.
(R) Ryder System Inc
(AFL) AFLAC Incorporate
(RBA) Ritchie Bros. Auctioneers
(CHRW) C.H. Robinson Worldwide
(DE) Deere & Company
(QCOM) QUALCOMM
(ABM) ABM Industries
(SJW) SJW Corporation
(HCSG) Healthcare Services
(CR) Crane Company
(EMR) Emerson Electric
(ADI) Analog Devices
(MCHP) Microchip Technology

This is a view of those 25 stocks showing their quality ratings, current yield, 5-year dividend growth rate, the percentage price change to reach the target price, the expected total return, and also the percentage distance of the current (2013-04-19) price from the trailing intra-day highs for 3 months, 1 year, 3 years, and 5 years:

(click to enlarge)

expectedTRtop25

The full spreadsheet of the information for the 164 names that passed the filters is available at this link to those who join our opt-in email list to receive occasional commentaries.

The Apple Question

Wednesday, January 16th, 2013

We have Apple in some accounts, including our own, and like many people are rather amazed at the dramatic price action in the stock, and the oppositional heat in the debate about whether Apple is a calamity or an opportunity.  If you read the blogs, it sounds like the Republicans and Democrats in Congress.  The devotion and conviction to either the bull or bear case for Apple is deep and intense.

As the current tug of war as played out on the price charts, the bears are winning.  In the war of fundamental data and valuation, the bulls would be expected to be the winners.   

The Danish physicist Niels Bohr (1885-1962) said “Prediction is very difficult, especially about the future.”  — and that’s the big problem with Apple right now.  The charts say look out below.  The fundamentals say, Apple is no worse than and maybe better than Microsoft or Google, but those aren’t tanking.  The competitive landscape is getting tougher, but that only means Apple might not be able to grow super fast — just fast — and what’s so bad about that? 

Next week, Apple will release its first quarter sales and earnings report (their first quarter is Oct – Dec, and is usually their best quarter). 

There are lots of disembodied statements and question about the company, such as “Did Apple sell 50 million iPhones?”  Without some context, you can’t know if that is a big enough number, and what it means in terms of growth.  So, here is a table of data for the last six first quarters that will put their most recent quarter in perspective, and not just look at one dimension.   

This table list net sales by region, gross margin, unit sales by device type, net “cash” (cash, cash equivalents, short-term investments and long-term marketable securities less total long-term liabilities), and net “cash” as a percent of market-cap.

This is the scorecard that will probably determine if Apple stock sinks or swims.

Right now the $10.60 annualized dividend versus the $44.15 earnings per share is about a 24% payout — less than the current approximate 30% payout of the S&P 500.  That leaves a 20% dividend increase just to get to “average”, before earnings increases, which also give room for dividend increases.  The current yield is about 2.2%, which is about the same as the S&P 500.

However, while the yield is average and the payout is below average, the growth factors are well above average, and the leverage and free cash flow factors are superior.  More on that in a moment.  Let’s look at the painful to observe charts.

This long-term chart shows the Apple price fall into 2009, and the steady rise from then through 2011, and the steep rise in 2012 resolving to the current fall.  The blue lines trace out a channel based on the time from post-2009 crash up to the time of the steep rise begun in 2012.  Those two blue lines suggest a current price target in the broad vicinity of perhaps $475 to $550 based on the growth pattern prior to 2012.

For additional perspective, the first iPod was introduced in November 2001; the first iPhone was introduced in late June 2007; and the first iPad was introduced in April 2010. 

This chart is just the former chart up close in a shorter period.

This next chart begins in June 2007, when the first iPone as introduced. It shows three things.  

The blue trend line is a linear regression best fit trend line from the iPhone introduction date, through yesterday, and extended out to the end of 2013.  It extends to about $640.

The green trend line is also a linear regression fit, but it starts at the stock market bottom for Apple in 2009 and goes up to the period where the price chart got very steep, and then extends out to the end of 2013 (it does not consider the pre-2009 period or the “steep” period beginning in 2012).  It extends out to about $650 by the end of 2013.  Those are not certainties, but they do give a potential heading for the price, if Apple is able to keep up its multi-year head of steam.

The little red curve line is a 1-month price probability range based on the 1-year historical price volatility, using a 90% probability.  In other words, if the volatility over the next month is the same as the volatility over the past year, there is a statistical probability of 90% that the price by mid-February will be between about $455 and $550.

 

Some of the key negative arguments about Apple include:  

  • They need a new WOW product, not just incremental improvements on old ones
  • Steve Jobs was the real reason for Apple’s success and he is gone
  • The iPad Mini and expected lower cost iPhones for emerging markets will harm gross margins
  • Samsung is eating their lunch
  • Apple’s patent litigation has not created a good wall to keep away the competition
  • Android is more innovative
  • The phone carriers want more phone competition and don’t want to be Apple’s captive
  • China Mobile is selling for other phone companies, but not Apple, because they won’t subsidize sales like Apple wants
  • Microsoft directly or indirectly has an evolving presence in the phone and tablet space that takes away from Apple
  • Apple is cannibalizing its iPod and computer lines with the phones and tablets
  • Markets for those who can afford high end products may be saturated
  • Apple is relying heavily on phone and tablet upgrades, and the new features don’t compel action

Some of the key positive arguments about Apple include: 

  • Nobody can touch them on elegance and ease of use
  • Nobody else has the retail store footprint or selling style
  • Nobody else has the ecosystem of devices, software, apps and content and total product technical support
  • China will become their #1 market and keep the money rolling in
  • Apple and China Mobile (600+ million subscribers) will eventually reach a distribution agreement
  • Apple is not done innovating in devices, software or content
  • Apple’s fundamentals and valuation are better than all of their competition
  • Apple’s net cash wealth will allow them to be both a growth company and a value and dividend company at the same time
  • A significant portion of Apple’s stock price is net cash, effectively making their valuation multiples lower than they already seem
  • Declining market share does not mean declining sales (it’s a really big pie)
  • Did you try to get into an Apple store over the holidays?  Did you try to buy a iPad mini over the holidays?  They were gangbusters.

Let’s look at some charts that get at the fundamentals and valuation.

While Research in Motion (Blackberry) and Nokia are players, their financials and price charts are a mess, so we’ll leave them out. Samsun is the gorilla, but unfortunately, we can’t chart their data.  These charts focus on Apple, Microsoft and Google — all significant players in one way or the other.   

Google is the supplier of the Android phone operating system, and Microsoft is bent on creating an alternative ecosystem.  They now have directly or indirectly; computers, laptops, tablets and phones, all wrapped in a single operating system, with an evolving app store, a cloud storage system, a cloud based Office service, and perhaps most of all, ability to run all Windows programs on there to be release Surface Pro tablet, and they are better situated to penetrate the corporate environment with their tablets than the iPad.

PRICE

Apple’s price rise (associated with a corresponding sales and earnings rise) massively outpaced Microsoft and Google, even after the recent drop.

REVENUE GROWTH

Apple’s year-over-year quarterly revenue growth, is much better than that of Microsoft, better than Google until just recently, and (not shown) better than that of the S&P 500. — but prices for Microsoft and Google are not crashing.

RETURN ON EQUITY

Apple’s return on equity is much higher than that of Microsoft and Google.

P/E RATIO

The conventional price to earnings ratio for Apple is lower than that of either Microsoft or Google, yet, Apple is growing faster and has more net cash, and has a higher return on equity.

EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization)

EV/EBITDA is a way to look at a company from the perspective of a buyer of the whole thing.  It includes debt to be assumed and strips out excess cash, among other things — the lower the ratio the better.  Apple is much less expensive than Google and about the same as Microsoft.

Let’s see what the analyst community has to say.  We understand that they are all over the lot with lovers and haters, momentum and value investors, but let’s look at the range and perhaps take some comfort from the average.

1-YEAR PRICE TARGETS

This chart shows the evolution of the high, low and average 1-year price target from 56 reporting “street” analysts.  At the extremes (usually wrong), we see a low of $270 and a high of $1,110, but an average of $729.

At $270, the P/E on current trailing earnings would be about 5.5x.  That is a crazy number, unless earnings collapsed going forward.

At $1,110, the P/E on trailing earnings would be over 25x, which sounds rich.  A multiple of 25x back in the dot.com era would be paltry, but today there is a bit more rationality to pricing technology companies.

At $729, the P/E on current trailing earnings would be about 16x.  That seems to be a reasonable number in relation to the current multiple on the S&P 500, which is about 13x; or the current 14.7x multiple on Microsoft, or the 22.7x multiple on Google.

Here is how the price (black) has compared to the analyst predictions (blue) over the same 18 months.  While analyst ratings are wilting a bit, they have definitely not followed the price.

Here is a view of the high and low and average price targets in terms of how much the price would need to change to reach those levels.  The range is up 45% to the average target, down 46% to the low target, and up 121% to the high target.

Of the 56 analysts, there are 2 SELLs, 1 UNDERPERFORM, 6 HOLDs, 21 OUTPERFORMS, and 26 BUYs.

ThompsonReuters has a service called StarMine, where they identify those analysts who have been most accurate in each sector.  From that reduced list of analysts, they compile a rating for each stock.  Here is the StarMine rating on Apple. Their view is skittishly neutral on average, with Standard and Poor’s as the big bull among them.

Bernstein Research put out an interesting observation.  They studied many hundreds of mutual funds and found that fewer growth mutual funds now own Apple, and they hold it at lower average portfolio weight.  However, they found that more value mutual funds hold Apple.  They postulate a rotation of one type of investor out of Apple, and the rotation of another type in.  That would not be a one-for-one exchange, but does tend to suggest support developing for Apple coming from a different quarter.

Here are “street” analyst consensus estimates of operating income, book value and cash flow out for the next three years (2013-2015).  They show cumulative 43% growth in operating income (about 12.5% annualized),  a 102% growth in book value (about 26.5% annualized), and a 36.8% growth in cash flow (about 11% annualized).  These are good numbers in general, but not as good as recent numbers for Apple.  It is axiomatic that as a company grows, its rate of growth must moderate, but this is part of what’s bothering the market.

Those numbers are good, but not spectacular.  They put the PEG ratio (P/E divided by expected growth rate) at more like 1 than the ThompsonReuters 0.5 PEG. There is plenty of room for disagreement on the PEG — after all it is about the future, and different sources give very different numbers.  However, 1 is still an attractive PEG ratio.  There are plenty of stocks doing nicely in terms of price growth with PEGs of 2 and 3, even 4.  The S&P 500 has a PEG in the vicinity of 1.3. Microsoft has a PEG of 1.10, according to ThompsonReuters, and Google has a 1.35 PEG

Look, you can’t fight the tape, but what you do depends on your investment style, time frame and personal risk taking limits and other needs.

If you are a trader, you should have been long gone by now and not back in until the direction changes or some clear sign of a bottom is in.

If you are a long-term investor, there is rationale for suffering through all this, or building a position from here. 

We have some.  We feel burned, but are not traders and intend to wait until the earnings announcement next week. 

Before January , we thought the selling was mostly capturing gains ahead of the expected increase in capital gains taxes.  That was wrong. If next week’s announcements fail to assure, then we have to reassess, but we expect a favorable outcome. 

Time will tell, and it will tell soon.