Philips has always been primarily a light company, that is glowbulbs as the original name “Gloeilampen fabriek” indicated. Over time the company diversified into multiple different areas and now, apparently, it has decided to consolidate into two separate groups, Light and Health. Big is bad and small is good. Will it work? Perhaps but if the EW pattern is an indicator it will not, at least not initially.

After the 2008 drop the stock has almost retraced all the losses but it has done so in a very clear a-b-c pattern which, by it’s very nature, is corrective. The outlook therefore is for another wave down comparable to the 2008 one. Not a buy, unfortunately.

The following chart and text is from October 28, 2011, almost exactly a year ago;

A year has passed and again, here is where we are;

We are right in the predicted range and are therefore sellers. 60% for a year is nothing to sneeze at, particularly not since this trade was not based on any EW insights. $27 is where the upper trend line runs and it may still get there, but we prefer getting out now.

From an EW perspective a case could be made that the latest run up from $16 to $26/27 is in fact an e wave in a large triangle, otherwise it might be a 4th wave in the leg down from $36. Nothing is terrible convincing.

This was then. The philosophy was that any time this stock moved 10 blocks (about $20), it would retrace at least $10. This had happened 6 times already. You could be early as you do not know if it is going to be 9,10 or 11 blocks so in the worst case you would only net $6 (if you bought 2 blocks too early). As it happens we hit the nail dead on at between $16 and $17. Ergo we now look for it to rise to $26 to $27. Here is where we are;

We are at $22, and would be quite happy with $24, for almost a 50% gain. Nervous people should exit earlier.

These guys have been around for more than a century, and are in the business of lighting up your life, you health and your general well-being. They are also “royal”, perhaps the Queen bought a new light bulb there. Last time they reported terrible numbers, supposedly because the retail sector, in which they are big, did not do so well. They also lifted my spirits considerable by paying for my stay at the University of Amsterdam for 7 years.

It is a unique company in many respects. It operates in every country in the world and is the only company that actually uses “replacement cost accounting”. Perhaps to their detriment as few people, particularly in the US, understand it. In a way it is senseless complexity that seems to permeate many sectors of their business, this in contrast to their present logo. No doubt someone higher up was infatuated with Jane Austen.

The stock moves like a jo-jo. Here are an old chart adjusted for the present, and a new chart:

For some reason Bigcharts does not go back that far anymore, which is why I updated an old chart , on the left. Notice the purple line running through the bottoms which I replicated in the chart on the right (click to enlarge). Now let’s forget about EW. In fat red I highlighted 6 periods during which the stock kept moving in one direction without even a minor pause. Two are 9 blocks long, one is 10 blocks, two more are 11 blocks and the present one is at 9 blocks. Not including the present one that is an average of 10 blocks, five times! I know this is not very scientific but could it just be possible that this 6th time will emulate the 5 others and can then only go one single block further, on average. Also, and this is more to the point, once the 10 blocks are done the stock reverses for at least $10 every single time. So even if you are early by a block, or even 2, you still stand to make $6 if history repeats. The proximity of the purple line to the present price suggests that there may only be a dollar more to go.

Those investors that just like value investors from the Ben Graham and David Todd mold will just love these numbers.  The PE is at 8.19 and the dividend yield at 6.6%. The stock’s high and low for the year passed  are $33.93 and $16.26, close to 50%. At about $15 , or even now, this is a buy.