Then (29th July, 2011) and now;
A year has gone by for this Swedish ball bearing manufacturer and the stock is down about another $9, from $27 to $18. That is 33% with a lot of ups and downs. The target, then and now, remains the same at about $5.
ANR, Alpha Natural Resources Inc.
Here is another miner, in this case coal, that is a little ahead of VALE and TCK.B. Because the “flat” points to stock prices in negative territory, if it were to unfold as per the picture, which is theoretically possible but in practice not, one must assume that the drop will stop soon. From $95 to $6 is already an impressive correction. Anyone holding this stock seeking alpha must be rather disappointed. It is better to keep stocks that are clearly a hold. There aren’t many but here is one, a grocery store, that stands out, at least for the past 10 years since a few accounting irregularities tanked the stock;
This is a zig-zag, not that different from a flat except that it is a faster pattern and consequently unfolds as a 5-3-5, not a 3-3-5 sequence. The adjective Koninklijke means Royal.
VALE, Compahnia Vale do Rio Doce. TCK.B Tech Corp
I believe this is the world’s largest miner. The pattern is perfectly clear, it is a “flat”. It targets about $8/$7 to the downside but obviously can go lower. The minute details are open to debate but the overall pattern is really is not. For comparison we add TCK.B (or A) for which there are previous blogs;
Teck has the same pattern, except that it is “irregular” (the B-wave is higher than the A wave). It targets about $13 to $15, proportionately about the same level a Vale. There are 9 different blogs going back two years anticipating these moves, perhaps they will continue along the scripted path.
The charts are deliberately with the same time-frame and size. You can click on them and move them around to make a better comparison.
TA, TransAlta Corp.
TransAlta Corp is a utility, the largest publically owned in Canada. It operates here but also in the US. It does a little bit of every thing, coal, wind , oil, hydro, solar and geothermal. It has been around for more than 100 years. Sustainability is a primary concern. 3 days ago they announced their dividend for the most recent quarter, $0.29. or $1.16 a year (without compounding). With a share price of about $17.50 this works out to 6.3% (when properly compounded about 6.5%). The p/e is around 22, a little high.
The stock is doing a large A-B-C down from the $38 high. It has already dropped 58%. 62% would take it to $14.50. It has already dropped to the level of the 4th of previous degree even if the range for that extends to about $13.50. The C-leg is small relative to the A-leg and certainly appears to be missing its 5th wave, which could take the stock to about $ 15 if 1 and 5 were to become equal. If the C leg grew to 62% of the A leg the low would occur at about $12. Just a few weeks ago, it was trading at the same level it was trading at 18 years ago!To make a long story short, in the worst case the stock could fall another 30%(but would presumable rebound within a short period of time, say 2 years at the most). lets assume your time horizon is somewhere between 5 to 10 years. Your risk-free return would equate to the yield of Government of Canada Bond with that maturity, shown below;
The actual 10 year is at 1.6%. If you were to own the stock in a taxable account you would be able to gross-up the 6.5% yield by 1.4(assuming you are enjoying the highest marginal tax rate) to 9.1%, for a difference of 9.1 – 1.5 = 7.6%. This could be considered the risk premium that you are willing to forego financing Ottawa. For non–taxable accounts the difference is still a respectable 5%. At that rate money doubles in 14.4 years so a brief paper loss for perhaps a year or two of 30% is not that relevant.
Then there is ZUT, the BMO equal-weight utility index. It is fairly new. Here are the charts;
Notice that the ZUT kept going up while the market in general was going down. Over the past two years or so it is up about 30%. It resembles the inverse of the bonds. TransAlta has gone down about 20% over the same period. It is a component of the ZUT so its relative performance is a little worse than those numbers suggest. Barring any fundamental reasons that I am not aware of, this should be a buy.