Tag Archives: stock analysis

4 Successful Trading Rules

The following is a guest post from MoneyFed.com. I think it’s good advice you’d be wise to pay attention to. Enjoy!

Successful investors don’t just take a guess, they discipline themselves to follow a tested, yet flexible, investment strategy that is based on principles for both bull and bear markets. Today, we’re going to examine 4 basic trading rules that have proven to be successful for weekend investors of all skill levels.

Trade with the Market Momentum:

Knowing the overall momentum of the market can save you thousands of dollars. As the markets trend upward, you can invest with more confidence that 8 out of 10 stocks are also trending upward. After all, it is these individual stocks that cause a market to move in a particular direction. And if the markets trend downward, you may want to tighten stop losses, invest only in the leaders, use half positions rather than investing your normal full amount into any stock.

Always Use Stop Losses:

There is some disagreement in the investment community about using stop losses. Many argue investors may be stopped out prematurely from positions during an abnormal market condition (such as May 2010). Nevertheless, I’d rather take my profit and put it in my pocket than watch my stock drop below my purchase price or worse. Unless you’re a sophisticated investor who can watch your positions throughout the day, always use stop losses to minimize your risk and maximize your returns.

Plan your Trade and Trade your Plan:

If you’ve taken the time to develop an investment strategy, as noted in the article above, you can invest with confidence because you’ve back tested your ideas as well as paper traded them until you were consistently successful. Now be disciplined… and stick to your plan.

Review Every Trade Every Week:

It doesn’t have to take hours… but you must take a few moments to review every trade every week. Has anything changed (i.e. news, earnings report, market conditions, technical indicators, etc.)? Then make the necessary adjustments which may include little steps such as moving your stop losses or selling half of your position. Finally, successful investors learn from each closed trade. What worked? What didn’t work? How did emotion play a role in my decisions? Did I follow my investment strategy and if not, what impact did my lack of discipline have on my bottom line?

stock market analysis august 2014

Top Down Stock Market Analysis August 2014

Here’s a little top down stock market analysis for you, heading into August 2014. To be honest…

I don’t often find this kind of big picture down analysis that helpful. But it’s interesting to think about every now and then. So for the fun of it, here are some thoughts on the top down fundamental and technical picture going into August…

August 2014 Top Down Stock Market Analysis:

  • The Dow Jones Industrial Average has been under the 20 day moving average for a couple of days. And it’s now on the 50 day MA.
  • Previously we talked about a potential homebuilder recovery in 2014. But that seems to be a myth. Just look at the chart of XHB heading into August.
  • Amazingly, US GDP printed 4% growth heading into August 2014. While this might seem like good news, will it cause the FED to raise interest rates sooner? Wall Street logic isn’t always intuitive.
  • The US dollar is absolutely spiking. Pull up a chart of DXY (dollar index) and see for yourself. It looks like it could keep running. This could logically correlate to a draw down in equities. But on the other hand, depending on the move relative to the Yen, the carry trade might not unwind after all. Confused yet?
  • Junk bonds are finally getting hit hard. Is this a warning sign of things to come? Or could it be that investors are getting more cautious and just asking for higher yields in riskier issues.?

As you can see, it’s easy to muse about all of the confounding factors influencing the stock market, heading into August 2014. But drawing a firm analysis is much harder. Personally, I prefer to focus on what’s within my control and not get too dogmatic about correlations or macroeconomic implications.

Find good companies and trade them well. Simple as that.

And By The Way: If you’re curious about my focused approach to the stock market, I encourage you to download my eBook free below this blog post. You’ll also get weekly updates with some of the best tips and tools to help you improve your approach to the stock market. 

agco pre earnings update 2014

AGCO 2014 Pre-Earnings Update

AGCO is an investment idea I’ve been looking at for a while. Here’s the original AGCO analysis. But because of the recent AGCO technical analysis, I’ve held of from building my position. But you know what?

I can’t stop thinking about AGCO. It’s a wonderful business and it’s  significantly cheaper than the S&P-500 average no matter how you slice it: Price/Earnings, Price/Book, Price/Sales, Price/Cash Flow AGCO looks undervalued (source). And valuation aside…

The business fundamentals look strong. AGCO management is focused on margin improvement and expanding their global footprint. The company is aggressively buying back shares. So here are some factors I’m thinking about before AGCO reports earnings next week:

AGCO 2014 Pre-Earnings Update:

  • I don’t like to give insider buying too much credit. Because managers aren’t necessarily good investors. But when someone takes a massive stake, it’s hard not to pay attention. In this case, Mallika Srinivasan has directly and indirectly acquired over 5.6M shares of AGCO (AGCO insider buying data from Nasdaq.com). So who is this mysterious buyer? Mallika Srinivasan is a former Ernst and Young Entrepreneur of the year and Chairman and CEO of TAFE, a $1.6B Indian tractor manufacturer. She’s also on the board of AGCO and TATA motors. Draw your own conclusions from this.
  • AGCO sells farm equipment through a network of dealers. So connections in the agriculture company are obviously important. An AGCO executive getting elected to president of CEMA – the association for agricultural machinery in Europe – seems like a positive development for AGCO’s influence in Europe.
  • AGCO has some exposure in Russia and Ukraine, which some cautious investors might see as a red flag. But AGCO operates in over 140 countries around the world. So it’s likely the influences of any regional conflicts will be minimal.
  • Going into earnings, analyst expectations are mixed on AGCO. But even though the average rating is HOLD, the average price target of $59 represents almost 15% upside from here.

What do you think about AGCO going into earnings this year?

And By The Way: If you’re looking for more insight and ideas on how to analyze stock picks, I encourage you to download my ebook below, The Intelligent Swing Trader. You’ll also get weekly emails sharing the best tips and tools for improving your approach to the stock market.

your agriculture company investment analysis 2014

Your Agriculture Company (NYSE:AGCO) Investment Idea Analysis 2014

Your Agriculture Company (NYSE:AGCO) is an investment idea that I looked at a couple of months ago. You can read the in-depth AGCO investment analysis here.  In fact…

Most of the thesis in the above AGCO analysis is still in place. On paper, things look pretty good. And in case you’re too busy to read the above, the basic gist is as follows:

AGCO manufactures and sells farm equipment, like tractors, combines and grain storage facilities. While sales have leveled out a little earlier in 2014, operations are going well. If you think people will keep eating food, AGCO seems like a good way to profit from it.

And one more thing…

AGCO’s operations generate a cash flow yield of over 10%,  and they’re using a ton of it to buy back shares. It’s hard to imagine

But could this tractor company be temporarily under water?

Well, let’s take a look at some recent price action in AGCO to set the stage…

AGCO Weekly Stock Chart Analysis:

AGCO weekly chart july 2014

AGCO is in a strong weekly uptrend. But in the last few quarters some big selling has shown up. (Click to Enlarge)

As you can see in the chart above, over the last few years trading in AGCO has generally held to an upwards trend. It’s now hugging the trend, and the valuation looks pretty good. On the other hand…

If a long term down trend is just starting, then it’s probably a bad time to initiate a trade or investment. So let’s zoom in:

AGCO Daily Stock Chart Analysis:

AGCO daily chart july 2014

On the daily time frame, AGCO has seen a lot of selling. (Click to enlarge).

As you can see, there’s a ton of selling hitting the stock. The red bars are, on average, bigger than the green bars. Surely that can’t be good. And it’s not.

But there’s a glimmer of hope. Because all in all, AGCO has held up relatively well despite the selling. And this could be a good sign. So currently…

AGCO sits at a bit of a crossroads. If it fails to find support, the sellers could finally crack their nut. And that could lead to a tough harvest for stock holders this fall. But when you look at the fundamentals, the company is a little under-valued, generating huge cash and has a very strong business. So what’s an individual investor to do?

At this point, I believe in the long term success of the company. They have a strong balance sheet, make a ton of money and have strong global exposure.  And management is using all that extra cash to buy up a bunch of outstanding shares. I’m happy if there’s an interim dip in price, (which ironically will improve the efficacy of the share buybacks.)

And (disclosure) because I already own a little AGCO, I’m not in a rush to buy more just yet (especially since there’s no dividend). I plan to add to my position if AGCO forms a short-term double bottom at $50.50. Or I’ll start buying if the stock begins to put in a couple of higher lows.

Here’s the bottom-line:

Success in active investing can really be helped by a basic awareness of technical analysis. A little position management can go a long way. And it’s not hard to do a bit of “if/then” contingency plan.

Stocks oscillate in price. Rather than ignore this you can do a little legwork to make it work in your advantage. It’s not rocket science. So…

Although I’m eager to buy AGCO for the long term, I’m happy to wait for an intelligent entry. I’ll wait for an uptrend to resume (seen by 2-3 higher lows) or on the bounce up from a bounce to $50.40. That’s intelligent swing trading.

And By the Way: If you’re still looking for more information, download my eBook – “The Intelligent Swing Trader” –  on the side of this page. You’ll also get email updates for new trade ideas that show you how to determine if stock market opportunities are for you.

nevsun resources analysis 2014

Nevsun Resources Investment Idea Analysis 2014

Nevsun Resources (NYSE:NSU, TSE:NSU) is a small cap mining company headquartered in Canada, but operating in Africa. So what’s the story with NSU? Why is it a stock pick worthy of analysis? And is it good for a trade or investment?

Well, I’m glad you asked.

In the last year or so, NSU has made the transition from a gold miner to a copper miner. And by all accounts, things are going pretty well. For an in-depth update on the fundamental picture, try reading this Nevsun Resources Seeking Alpha Article.

The May 7 2014 NSU conference call is also worth reading.  For example, here’s a compelling excerpt:

“To give you a sense of how well we [NSU] have performed so far this year, I point out that during the first quarter of 2014 alone, our net income and cash flow from operations was greater than all of 2013.

So while there is some political risk for NSU’s operations, they are really starting to ramp up sales. Their dividend yields over 4%. And there are also some other highlights worth mentioning.

For example, the company’s market cap is about $780M, and they have over $400M in working capital (about $1.69/share in cash with no debt). And since the copper production transition is nearing completion, CapEx should could down a lot this year, which will provide a big boost to free cash flow. To get a better picture of NSU’s financial condition you can read NSU’s key stats on Morningstar.

Here’s one more consideration: NSU could benefit if the price of copper does indeed finally start moving higher. Take a look for yourself…

JJC nevsun resources comparison

The price in copper could be starting to trend higher. This would be another tailwind for JJC. (Click to enlarge)

Now let’s look at NSU more specifically. While the stock is still dealing with some overhead supply, it’s gaining momentum over the longer term and looks to be peaking above key resistance. And it’s been gaining steam above the 20 day moving average, while the 50 and 200 day moving averages are turning upwards, which might be a sign momentum is picking up.

nsu daily chart july 2014

NSU has been building a stable base. Will this trend strengthen? (Click to Enlarge).

If you take a closer look, the NSU hourly chart shows some large buyers coming in to support the trend.

nsu hourly chart july 2014

Will buyers keep showing up to support this trend? So far so good. (Click to Enlarge).

For the sake of disclosure, you should know I own a small position in NSU. I’m looking to add more shares on a pullback to the 20 day moving average. And if the operations remain on track I’ll double down on a pullback to 3.50. That’s not investment advice and you should do your own research. But I wanted to share how I’m thinking about this stock idea. Make sense?

Updated:  Since originally drafting this post, NSU has pulled back a little bit, but remains above the upward-sloping 20 day moving average. I am now watching to see how NSU consolidates before adding more to my position. If NSU bases out for a few days above the 20 day moving average and then starts to go higher I may add more. If it pulls back to the 20 day moving average more sharply, I’ll probably buy it once it starts bouncing. Again just sharing my thinking for educational purposes and it’s no endorsement that trading plan is appropriate for you.

And By The Way:  If you’re looking for more information on how to find and analyze your own stock ideas, you can download my free eBook using the form below. You’ll also get weekly tips and tools to help you make more confident stock market decisions. Check it out!

toronto retail store location case study

Mini Case Study on Retail Store Location – RY, BBBY and SBUX

This Mini Case Study on Retail Store Locations features publicly traded companies that (at a glance) seem to be doing a good job with their brick and mortar retail locations.

Now keep in mind…

This quick case study is only based on my anecdotal experience, so you’ll want to take the results with a grain of salt and compare and contrast them with other sources of information, okay?

Nonetheless:

One of the best parts about living downtown in a big city like Toronto is that there is always something happening. Urban change is always underway. And in big city centres there are always corporate giants looking for opportunity, and planning their next move.

So it’s fun and educational to see how companies are making the most of retail space given this changing landscape. And that’s what inspired me to share this little case study on retail store location.

Mini Case Study on Retail Store Location – Royal Bank of Canada:

Royal Bank of Canada (NYSE:RY, TSE:RY) is Canada’s largest bank. And yet I think most Canadians would agree that TD Bank (NYSE:TD, TSE:TD) is the retail favourite. Those TD Green Machine ATM’s are everywhere! But…

As this mini case study will show, that might be changing. At least on the streets of Toronto.

That’s because while walking around downtown Toronto I’ve noticed something…

RBC seems to be pursuing a new strategy.

It looks like they are making a dedicated effort to build branches underneath new condo developments. That’s a smart retail location strategy, right?

Personally…

I love the economics of putting a store under a condo because you are guaranteed to have thousands of potential customers going by your front doors every single day. It’s a pretty captive audience you should be able to milk a regular profit from (assuming you didn’t overpay for your location).

But don’t just take my word for it.

Look at some of these photos I snapped while running errands over the last week:

Mini Case Study on Royal Bank of Canada Branch Locations (Photos):

This new condo near Bay and Dundas is right in the heart of downtown. It’s a very busy intersection and there are more buildings going up in the area. This new RBC branch seems very well-positioned:

Retail store Location Case Study 1

Photo of Royal Bank of Canada Branch under a new condo development.

The next day when I was walking up Yonge Street, I also noticed that RBC was staking out some territory underneath another new condo development. This building hasn’t even started going up yet. But RBC has already staked their claim:

Retail Store Location Case Study 2

Case Study Example #2: New RBC branch coming soon to another new condo building.

Finally, downtown Toronto is home to (what will be) the tallest condo tower in Canada. And while you can’t see it in this picture, RBC has staked out a prime location on the ground floor:

Retail Store Location Case Study 3

Case Study Example #3: RBC has a new branch in Canada’s tallest condo.

It’s also worth mentioning that Bed Bath and Beyond (NASDAQ:BBBY) has a location under the Aura Tower above. And remember, BBBY is a  well-run and well-managed retailer, so if this is a location they have prioritized, I am seriously paying attention.

Just think about it, there are bound to be thousands of people living in that building who desperately need bedding and banking. Additionally…

(And maybe this goes without saying)

Starbucks (NASDAQ:SBUX) has also done a great job cornering the condo market. Every time a new condo development is built, there are seemingly 2-3 Starbucks opening on each of the street corners nearby. Admittedly, you could also just argue SBUX stores are everywhere.

Either way, it’s neat to walk around and catalog the companies that are doing a good job executing their retail store location strategy. It’s also a good distraction if you get bored form shopping.

Anyway, I’m curious:

I wonder if these companies are doing a good job growing their footprint in Toronto only, or if the same is true in your neighbourhood as well. So…

If you have any observations of your own please let me know in the comments below!

Retail Store location Case Study Wrap-Up:

I hope you enjoyed learning from this quick case study. Of course these photos aren’t conclusive one way or the other. Retail store location might be an indicator of management skill. But without knowing how much the locations cost to set up and operate, it’s hard to get an accurate estimate for the shareholder value they create.

Nonetheless, it’s one more  indicator that’s easy to keep an eye on. And it makes running errands around town a little more interactive. When you combine these anecdotal observations with accurate price target calculations you can start to get a sense of whether or not a company is worth investing in.

So while it seems like the finance and accounting job market is strong, RBC should continue to ride these tailwinds and conquer urban market share with this smart retail store location strategy.

And By The Way: If you’re looking for more information on how to improve your approach to investing I encourage you to download my ebook below. It’s free, and you’ll also get easy to use tips and tools each week to help you be more profitable in your trading and investing.

biotech bubble 2014

Are ALL Biotech Stocks in a Bubble?

Are ALL Biotech Stocks in a Bubble? It’s something I’ve got to ask myself as the second half of 2014 approaches. At this point in time there’s a lot of talk about biotech bubbles.

And to be honest…

I tend to agree! I think biotech stocks have had a wild run over the last couple of years. And at this point, a lot of them are laughably overvalued. But don’t take my word for it.

Here’s an updated monthly chart of IBB, (a publicly traded ETF for biotech stocks). See for yourself:

Biotech Stock Bubble 2014

Biotech stocks have gone on quite the run in the last year. Is this bubble about to burst? (Click to Enlarge).

By the way, you can read the IBB component companies too. But the main thing to consider is that biotechs have gone on an epic run over the last 2 years. And now they’re coming back down to earth.

But are ALL of these biotech stocks still overvalued?

Maybe not.

Just take another look at the IBB monthly chart above.

Do you see what I’m getting at? While the biotech stocks have clearly had a huge run going into 2014, they were also stagnant for the 10 years prior. If you look carefully you can see that heading into 2013, biotech stocks as an index were trading at the same levels they were in 2002!

So are ALL biotech stocks really in a bubble?

Biotech Stocks in 2014: Bubble or Buying Opportunity?

The simple truth is that the broad panic selling of the biotech index will cause fear to spread in people who are over-exposed in biotech stocks. That means they will probably consider selling their biotech stocks too (at least to lock in some profits).

Do you see where I’m going with this?

biotech bubble popping 2014

Is this bubble about to pop?

The selling in biotech stocks starts to bring the IBB down almost as fast as it went up! And this big time price volatility is sure to leave some investors running scared.

But blind biotech selling also leads to inefficiencies in the stock market!

Think about it: Not all biotech stocks are the same. They have different sales growth, EPS and free cash flow rates. But the market doesn’t seem to care.

Right now, the liquidation is hitting the whole biotech sector. And if that goes on long enough, certain biotech stocks begin to look really under-valued.

Of course, the trick is finding the right ones.

Biotech Buying Opportunities in 2014:

There are couple of ways to hunt for biotech buying opportunities in 2014, if that’s your inclination. And naturally…

One of my favorite ways to find stock ideas is using stock screeners. For this biotech stock research I would probably use a variation of the best value stock screens in 2014. In this case I think consistent free cash flow, sales growth and strong growth estimates are necessary to ensure you have a sufficient margin of safety. Make sense?

Another way to whittle down your list would be to use an intra-industry analysis stock screen focused exclusively on the biotechnology sector. You can set this up for free in Finviz and really drill down on the different biotech stocks. By looking for the most under-valued stocks (from a current and future sales, EPS and/or free cash flow perspective) you can really start to identify biotechnology buying opportunities.

One idea that popped out on an initial screen was Jazz Pharmaceuticals (NASDAQ:JAZZ). I don’t own any JAZZ and I probably won’t end up buying any.

But it’s a perfect example…

JAZZ meandered from 2007-2011 before going on an epic run higher from $10 to almost $200 over the next three years. JAZZ has now pulled back to $137 and still threatening to sink lower.  So while the fundamentals may not justify a $200 price tag, they might justify a $160 price tag.

But is it worth catching falling knives?

And remember…

Valuing biotechnology companies comes with a unique set of challenges owing to the complex regulatory framework, the various reimbursement programs and the intense intellectual property competition. If you’re not familiar with the space you’re going to need to get up to speed… (or maybe you have a friend who’s a doctor).

Another Word of Warning About Biotech Bubbles:

At this point, all of this is just an academic exercise about where biotech bubbles stand in the current market environment. Putting money to work is much riskier of an idea. And I need to stress to you that just as markets were irrational on the upside, there is a very good chance they could be exuberant to the downside too.

If you try to bottom pick biotech stocks you’re probably in for a bit of pain.  There’s a lot of indecision in the market about biotech stocks right now. So tread lightly.

You’re going to need to be patient. And pick your battles carefully. But I’m willing to bet…

If you can put in the work, and your time frame is long enough, there could be a very profitable buying opportunity right around the corner in the world of biotech stocks. I actually have my eye on a few. Additionally…

One strategy might be to buy puts against the most overvalued biotech stocks and build equity exposure in under-valued biotech stocks only when they start to move up (along with broad market strength). Building these positions slowly with some insurance might be the safest way to play this (note: I’m not recommending you play this one way or the other – this is just for discussion).

And By The Way: If you’re still looking for more information on how you can approach the stock market with an integrated use of technical and fundamental analysis I encourage you to download my free eBook below. You’ll also get free tips and tools each week to help you improve your stock market profitability.

homebuilder stock recovery 2014

The Mysterious Case of Home Building Stocks in 2014

Home Building stocks are at an interesting point in 2014. It feels like they’ve been chopping sideways forever. And since 2007 they’ve been lagging the S&P-500.

See for yourself…

xhb vs spy 2007-2014

The home builder stocks got hit hard in the financial crisis and haven’t really recovered.

To further complicate the picture, the macro-economic and demographic headwinds seem at odds with the recent data coming out of individual home builders. Plus, home builders have been lingering for so many years, are they overdo to outperform?

Well, before jumping to any conclusions lets look at some facts…

Has the Housing Market Recovered in 2014?

There’s a lot of conflicting information about whether or not the home builder stocks have recovered. Just by looking at the graph above you can see they haven’t recaptured their prior highs.

And…

There are a lot of interesting data points about the state of the American housing market and the American economy at large in 2014. They aren’t exactly encouraging…

So as you can see by clicking on the links above, there are some serious headwinds to the housing market in 2014. And these top down arguments aren’t easy to ignore.

To further obfuscate the state of a 2014 housing recovery, let’s look at some technicals.

Home Building Index (XHB) Stock Charts:

The intermediate term weekly chart is actually looking relatively constructive. The weekly RSI leaves a little something to be desired. But it could be carving out a bullish cup-and-handle pattern. Take a look

xhb long term weekly chart

XHB might have been carving out a bottom over the last few years. But will it hold? (Click to Enlarge)

If we zoom in a little further, the picture is only complicated. XHB has failed to recapture recent highs.  And while home building stocks have failed to get moving, with lagging RSI, they aren’t totally at risk of falling off a cliff either.

xhb 1 year daily chart

XHB has failed to make moving after trying to break out on recent highs. (Click to enlarge)

One of the other interesting charts worth watching is that of the materials ETF, XLB. It stands to reason that if housing input costs are rising – the margins of home building companies will come under pressure. As you can see, that might be a real concern…

xlb materials long term weekly chart 2014

Rising material prices might be another challenge for new home sales. (Click to Enlarge)

But before getting overtly bearish on the market for housing stocks in 2014, let’s take a quick look at the results from some of the leading home builder companies in 2014.

PulteGroup and DR Horton both reported strong earnings last week. Both companies also had an increase in net new home sales compared to the same time last year. Were the disappointing housing data points in March really just the result of bad weather?

It’s hard to say. But the positive commentary from housing executives might offer room to be optimistic.

Housing market conditions remain favorable,” said Donald R. Horton, CEO of DR Horton. His counterpart at PulteGroup echoed this optimism. “We continue to believe housing is in the early stages of a multiyear recovery benefiting from low interest rates, low inventory and continued relative affordability of homes, and with consumers looking for well-located houses and displaying a clear willingness to invest in those features they value most,” said Richard J. Dugas.

Motley Fool

And from the PHM quarterly report

PulteGroup has gotten off to a strong start in 2014, with first quarter results showing gains resulting from our efforts to drive better pricing, operating margins and pretax earnings in support of higher returns on invested capital,” said Richard J. Dugas, Jr., PulteGroup Chairman, President and CEO.  “Our first quarter gross margin of 23.8% is up 580 basis points over last year and 60 basis points over the prior quarter, marking our ninth consecutive quarter of gross margin expansion.”

Housing is a huge part of the economy. But for now I would say the jury is still out on the mysterious case of the home builders recovery in 2014. Stay tuned…

And By The Way: If you’re looking for more information on how to analyze the stock market and improve your investment decision making you might enjoy my free eBook below. You’ll also get weekly updates and tools for helping you improve your investment ideas.

best technology investments for 2014

Best Tech Investments For 2014

What are the best technology investments for 2014? It’s a good question. Especially since high beta social media and biotech stocks have really under performed in the last month. So you might be wondering…

And are there any tech stocks that can make for a great investment in 2014?

Luckily, the answer is yes.  And even though the Nasdaq is down over 1% this year there are lots of great technology investments you can exploit in 2014 to try and make your portfolio outperform. So do you want to know what the best tech investments are for 2014?

The Best (Old) Technology Investments For 2014:

To be sure, there are a lot of exciting developments in technology going into 2014. For example, graphene companies are starting to gain a lot of traction. And cyber security companies remain in the spotlight following the increase in malicious software and hacking of major companies and governments.

old school technology stocks 2014

Are old school tech stocks coming back in style for 2014?

But to be honest…

I think the best technology investments for 2014 are some of the “older” technology companies. 

Let me explain what I mean by that:

A lot of the “bluer chip” value technology stocks that have proven track records of revenue generation have been left behind by investors going in to 2014.

For example…

While there are lots of new technology companies going public, and biotech stocks are forming a “blow off top,” old school technology stocks like Microsoft, Oracle and Apple seem to have been forgotten about by investors.

Just look at the relative performance of Apple vs. Facebook over the last year to see what I mean:

Best Technology Stocks Analysis in 2014

Can social media stocks really keep outperforming other technology investments in 2014?

At some point, it’s hard to believe that investors will continue to ignore older and more established technology companies. So where specifically should you be looking?

Some Technology Stock Picks for 2014:

As we head into the second quarter of 2014, I remain focused on finding high quality technology companies trading below intrinsic value. Rather than obsess over momentum favourites, this approach allows for investing in cash generating businesses at a fair price.

And after all, that’s the Warren Buffett Strategy for investing. So some of the tech companies I’m analyzing in 2014 are…

In addition to the list above, I’m also interested in ORCL and MSFT. But I haven’t gotten around to analyzing them in depth yet. For now, the list above could be a good place to get started looking for long term value in technology stocks.

But it’s not always smooth sailing when you’re investing in technology…

The Best Technology Stocks in 2014 – A Word of Warning:

To be sure, nothing in the stock market is a sure thing. And as these enterprise technology companies adopt to the future of cloud computing there will definitely be some bumps along the road. But…

Rather than give up on proven company’s like IBM when they miss earnings, long term investors might be able to find a nice entry point at a discounted price. If you do your homework there could be some great profits in the right technology investments in 2014.

And by diversifying across some of these “old technology” favourites you can reduce your risk further, by owning a nice basket of cash-flow generating technology stocks at very reasonable valuations. Now given the recent Nasdaq correction I’m not diving in head first. But I’m doing lots of investment research and adding these stocks to my stock market watch list so I can be proactive with investing opportunities when the time is right.

If you’re investing for the long term and looking to find value I think these technology stocks present an interesting opportunity. What do you think make the best tech investments in 2014?

And By The Way: If you want more information on how to analyze technology companies in 2014 you might enjoy my free ebook below. I created the ebook to share what I wish I had known when first refining my approach to the stock market. You’ll also get free tips and tools sent each week with the best resources for improving your stock market investments.

agco your agriculture company stock analysis

Your Agriculture Company (NYSE:AGCO) Investment Analysis

Introduction and Overview – Analysis of AGCO:

Your Agriculture Company (NYSE:AGCO) is the world’s largest farm equipment manufacturer, selling tractors, combines, and all kinds of other farm equipment to customer all around the world. When this AGCO analysis was written AGCO had a market capitalization of $5.1B and shares are trading around $55.

So let me tell you what the AGCO investment case is all about…

AGCO has roots going back to the 1800’s. But it’s current form was founded in 1990 by the purchase of Deutz Allis Corporation from Kloeckner-Humboldt-Deutz AG.  Since then AGCO has continued to expand through organic market growth and strategic acquisitions.

Now luckily…

The AGCO business model is pretty easy to understand. I need to dig deeper into the specific sales channels and how the company retains customers. But despite competition from the likes of John Deere and CNHI, it seems that making and distributing farm equipment through a network of dealers  is relatively straightforward.

On that note, let’s take a closer look at the market AGCO operates in, and the products it sells.

AGCO Competitive and Market Analysis:

At first glance the farm equipment business might not be that exciting. But at the end of the day, everyone needs food. So learning where it comes from, and what’s changing in the farming industry is important to understanding the competitive advantage of AGCO.

So as an investor…

You’ll be pleased to know AGCO appear to be at the leading edge of farm productivity. They are innovators with their precision farming  platform. And while you might not think growing and harvesting crops is high tech business, agricultural output gains in productivity enabled by technology are impressive. From a recent interview with AGCO (emphasis mine):

“Frankly, we have a lot of customers who are looking for efficiency tools, and one of the advantage of new equipment is the efficiencies we build into these machines be it a baler or a tractor. You can talk about fuel economy, the ability to get more work done, the ability to make a bigger or more dense bale of hay; all of those things contribute to the farmers ability to make money, and they’ll prove their worth in a market like we have in 2014.”

See for yourself, from this AGCO analyst day presentation,

AGCO market opportunity analysis

AGCO sees a lot of opportunity in emerging and developing markets based on their ability to improve farming efficiency.

From the slide above you can see AGCO sees a lot of opportunity to have an impact and improve quality of life in emerging markets. AGCO is also investing aggressively in R&D to keep finding new solutions and innovative product offerings.

AGCO R&D Analysis

AGCO continues to grow their investments in R&D – driving their strong pipeline of new products.

In addition to actively exploiting the future of farming, AGCO management has built (and acquired) some leading brands over the years. You can read the full AGCO history here. Fendt, Massey and Valtra are all respected brands in their respective markets.

AGCO Product Line Analysis

AGCO has developed and acquired a competitive offering of brands.

So as you can see, AGCO is pretty well-positioned in the farm equipment business. And global population growth continues to drive demand for their products. Now that you have an overview of AGCO and the market they operate in, let’s start analyzing the performance of AGCO shares over the last couple years.

Price Performance Analysis of AGCO Stock:

Shares of AGCO have had lumpy price performance over the last couple of years. Just take a look at the weekly chart below.

AGCO Long Term Weekly Chart Technical Analysis

AGCO Long term technical analysis shows lumpy price performance over the last couple of years. Keep reading to learn what this means to investors.

You should be able to see for yourself that shareholders of AGCO have been jerked around a little bit. The good news is, while AGCO stock has been slow to recapture prior highs, it isn’t overvalued either. And even based on conservative intrinsic value calculations I think AGCO has significant upside from here.

So although it’s not entirely smooth sailing from a technical analysis perspective, AGCO should be able to keep pressing higher. Just don’t expect any sudden explosions in price (upside earnings surprises not withstanding). Speaking of earnings, let’s look at the current valuation of AGCO.

If you’re a value investor like me, I think you’ll like what you find…

AGCO Fundamental Analysis – Financial Valuation

AGCO initially caught my eye because the stock appeared to be pretty well valued. At a glance, AGCO is appealing because it’s trading only about 25% above book value. And with a P/E hovering around 9 it’s hard to argue this stock is expensive relative to earnings.

The PEG ratio also comes in below 1, (0.94 to be precise), which is consistent with managements 2014 guidance of $6 EPS – showing future earnings aren’t being valued at a premium by the market. And I’m not the only one who thinks AGCO’s low expectations may make it a buy.

But wait. It gets better…

You see while these fundamental metrics are interesting, the long term performance of AGCO is even more impressive. Here are the key stats from Morningstar:

AGCO Key Financials Fundamental Analysis

AGCO has consistently grown revenue, earnings, free cash flow and book value. To a long term investor this looks like a pretty good track record. (Click to enlarge)

The fundamental picture for AGCO looks pretty good. Top and bottom line growth have improved quite a bit.  This boring old farm equipment company has a cap rate of almost 15%, which in this inflated stock market is a rare find. And operating margins have slowly improved due to factory efficiency upgrades.

AGCO is also throwing off large free cash flows. These revenue streams appear to be sustainable. And when FCF is discounted back to present value, future cash reflect an intrinsic value closer to $70 per share, even when using conservative growth rates.

I love finding investment opportunities that show a margin of safety even with conservative assumptions. I think AGCO is starting to fit the bill. But…

Even though AGCO might already be an interesting investment opportunity, let’s take a more in-depth look at the growth potential anyways.

AGCO 2014 Growth Narrative and Analysis:

AGCO has consistently grown over the years, so mid-single digit growth seems like a reasonable expectation going forward. Management has consistently said AGCO will continue to expand with an emphasis on slow profitable growth, rather than buying market share. As capital-conscious investors that’s what we like to see.

So where does the earnings growth come from? Interestingly enough AGCO has a nice global footprint driving revenue, as seen in their recent 4Q13 earnings results

AGCO global growth analysis

This large global exposure is nice to see in a farm equipment supplier because it provides some diversification against being exposed to nature’s whims in any one part of the globe. With operations on a number of different continents AGCO has some insulation from the hardship of farmers in one locality.

In the coming years, AGCO management is positioned to take advantage of market opportunities in Brazil, Russia and Africa.

That said, earnings for 2014 are expected to be flat compared to the year prior so there may be better opportunities to buy AGCO if there is a sustained stock market correction.

While management is doing a good job tempering shareholder expectations for growth this year, they’re trying to unlock value in other ways. Keep reading to see what I mean.

Analysis: Is AGCO Management Shareholder Friendly?

The AGCO management team seems to be increasingly focused on unlocking shareholder value. Not only are they advocating for profitable growth, but they’re also increasing dividends and authorizing a $500M share buy back. There’s a nice discussion of the merits in this AGCO Seeking Alpha article.

As an investor, it’s nice to see management actively trying to return cash to shareholders. While the dividend yield is still under 1%, there is lots of room for growth given the 7-8% payout ratio.

You might say this is just the beginning. And even more interesting to me…

A $500M share buyback is equivalent to 10% of the float of AGCO shares. This pretty clearly indicates that management thinks the stock is undervalued (as do I). By reducing the outstanding shares they can use their large free cash flows to further boost EPS. Interestingly enough, AGCO insiders are also buying shares at a frenetic pace.

With a management team focused on profitable growth, returning capital to shareholders and macroeconomic tailwinds it seems like the AGCO share price might continue to climb up. Of course, an investment in AGCO isn’t without risk.

Analyzing the Risks of Investing in AGCO:

It’s always hard to analyze the risks of an investment. And AGCO is no different. One risk to keep in mind is the opportunity cost of AGCO. After all…

agco farm equipment market analysis

Farming: Slow and steady wins the race.

The farm equipment market is a little bit boring. This is not a photo sharing app that Facebook will buy out tomorrow for $20B. But it’s also slow and steady. While year to year results might be a little lumpy due to market trends, AGCO has shown over the last 10 years that they can continue to deliver value to shareholders.

And to be sure: People will always need to eat.

But…

I guess there is some risk from Google growing hamburgers in a petri dish. That said, I’m not sure this is an immediate disruption investors need to realistically worry about. Plus, even if lab-grown protein really does take off, I imagine there will always be a higher end segment of consumers who want REAL animal protein that comes from a farm.

A lot of the risks you might think would face a farm equipment company, AGCO is relatively well insulated against. That’s because they have a diverse global footprint that helps reduce impact from regional events like drought or flood. They also operate at various levels of the farm equipment value chain – so in addition to just tractors they provide the answers to irrigation problems and food storage solutions after harvesting.

Management execution is another risk for AGCO, but again, the 10 year track record says “so far so good.” I wouldn’t blame you for being cautiously optimistic here. As long as AGCO management continues acting diligently and executing effectively with an emphasis on earning high returns on capital I think it’s okay to be a little bullish.

While this analysis is neither a recommendation to buy or sell AGCO or any other security, I hope it has educated you about this agriculture company and whether or not it’s worth further due diligence.

And By The Way: If you want to learn to improve your own investment analysis I encourage you to download my free ebook below. You’ll also get weekly tips and tools to help you improve your approach to the stock market.