Examination Question ... Fundamental Analysis

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hilarius

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Post Number: 2407
Registered: 04-2004

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Sunday, June 24, 2007 - 01:25 pm:

Which fundamental factor, or combination of fundamental factors, is most predictive of strong future price increases?

Support your answer with statistical evidence, and ongoing monitoring of specific examples using the chosen principles

Marks will be awarded for the best answers

Hilarius

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

007

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Post Number: 501
Registered: 05-2005

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Sunday, June 24, 2007 - 01:37 pm:

My answer is: earnings growth.

Unfortunately I have no statistical evidence or time to monitor specific examples

I guess I failed then ha?

Hillsong : At the Cross
Hillsong : Mighty to Save
Millions in Lagos

hilarius

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Sunday, June 24, 2007 - 01:51 pm:

007

Please read the question and consider your answers carefully

Multiple answers will be accepted any time between now and Christmas

Marks will be awarded on the basis of completeness of answers

So far you are top of the class :-)

Please give careful thought to maintaining that position :-)

Hilarius

PS 007 your homework seems to have been lost in the mail

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

hilarius

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Post Number: 2413
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Sunday, June 24, 2007 - 02:22 pm:

Good Afternoon

Here is a Model Answer

As a member of the Board of Examiners I am only able to provide this example as an illustration :-

I propose that the relationship of the average of the 2008 and 2009 Prospective Earnings Yield to the average of the 2006 and 2007 Retrospective Earnings Yield (using a best estimate for 2007) will act as a leading indicator of price gain when compared to the same ratio for other stocks in the same sector

Examples of stocks in 2 sectors PNA and QGC with ratios of 2571 % and 989 %

Details of calculations, comparison to other stocks in the relevant sectors and ongoing monitoring to follow

Hilarius

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

rederob

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Post Number: 2257
Registered: 10-2002

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Sunday, June 24, 2007 - 08:32 pm:

Dr Hilarius
There seems a lot of work to do!
But is the formula always successful?
My uncle eblode likes to kiss and make up.
Keep it simple, simple!
My simple formula involves energy, recycling and water.
Find good equities that leverage into these sectors and there should be long term success.
Nightstalker bought into PDN from 7cents upwards a few years ago and I believe he still holds this equity.
I think its still safe to buy into PDN today and get a lot more out of it.
The point is that when Nightstalker was buying PDN there was nothing to suggest you could do this exercise on it!
Even today there is not enough data to get a good idea of potential earnings yield.
Here's a roughie for the books - unlisted WHL.
Sorry Dr Hilarius, I can't do any sums on WHL yet, but it's the type of IPO I am looking for.
Humbly
rederob

(Message edited by rederob on June 24, 2007)

kate

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Post Number: 692
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Monday, June 25, 2007 - 11:07 am:

Rederob,
Is it a case of great minds think alike or fools never differ? Energy, renewables and water are the next long term bull market along with good agricultural land. Food, water and energy prices are going up.

I'm considering subscribing to Wind Hydrogen too. Have you done much research, my main concern is how much water they'll need.

Hilarius

I totally disagree with Rederob, if you can access those figures without too much hard work, it appears to be simplicity itself.
Also, it seems to be completely logical. The only problem I could forsee would be with resource stocks, not so much with QGC which has a constant market but PNA which is dependent on the price of gold.

Regards
Kate

rederob

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Post Number: 2260
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Monday, June 25, 2007 - 09:57 pm:

Kate
Our examiner is awol.

ps, given that I posted first, I hereby accuse you of cheating. That goes doubly for suggesting the humble peeler was proposing a logical approach to his search for the holy grail. Buy the whey, dug had a tip for Telstra: "Dyesol".

hilarius

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Post Number: 2414
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Monday, June 25, 2007 - 10:21 pm:

Good Evening

I expect students to exercise ingenuity and initiative while I am preparing details of suggested answers

My experience is that His Readiness has ample supplies of reason with which to prepare his homework

It is of course very distracting for him when persons of the feminine persuasion cross his path with other ideas, but no doubt both of you will gather your mental resources and come up with some suggested methodologies and examples without having to write out 1000 times "I must not daydream in class when researching questions of fundamental importance"

A hint for Kate you need access to a research site which shows EPS for stocks for 2006, 2007, 2008 and 2008

Calculation of the actual and prospective earnings yields using these EPS figures and dividing by today's price then becomes a snack. The resulting Earnings Yield percentage should give some interesting surprises.

Try it with QGC and PNA. You may be surprised.

Then try it with some other stocks and you may possibly jump to the top of the class

As Kate has rightly said it simplicity itself to compare the average EY for 2008/9 with that for 2006/7

Please continue your search for the Holy Grail zealously and anyone throwing paper darts instead will be dealt with severely

Hilarius (is considering bringing back the cane if his able and intelligent students continue to misbehave)

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

kate

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Post Number: 694
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Tuesday, June 26, 2007 - 09:35 am:

Hilarius,

I do my best work when I'm daydreaming!

How would you feel about doing the ratios if I give you a list of companies I feel may do well over the next few years? Rederob may have more knowledge about oil companies than me so he could do that although he'll probably only give you OSH and BPT?! I spend a lot of time researching big picture/trends but know next to nothing about fundamental analysis.

Rederob
Dyesol is on my list. Did I tell you about ADY?

hilarius

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Tuesday, June 26, 2007 - 10:32 am:

Kate

I suppose a good teacher should be willing to help a student with her homework ... especially when she asks so nicely

If you post your list of stocks I will see what I can do to post a spreadsheet with the ratios

Hilarius

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

kate

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Post Number: 695
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Tuesday, June 26, 2007 - 10:59 am:

Hilarius,

The first four - ARU, LYC, ADY and ORG.
I'm sure Rederob would be grateful if you could include DYE and you may be amused by its comparison to SCE.

I will look back over my research and find the others which may have potential.

Kind regards
Kate

hilarius

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Post Number: 2422
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Wednesday, June 27, 2007 - 05:38 am:

Kate

I was looking around near DYE and found DUE with rising earnings and an interesting chart

Test Question
DUE forecast earnings yield for 2008 and 2009 appears to be 76% higher than 2006 and 2007. Is this a bargain? Give reasons fundamentally and technically for your answer

This will keep you busy while I sort out DYE and the others you mentioned

:-)

Hilarius

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

kate

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Post Number: 696
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Wednesday, June 27, 2007 - 09:38 am:

Hilarius,

An interesting piece of homework. So I don't have to type vast quantities of information I've included a link to DUE's portfolio.
http://www.duet.net.au/duet/assetportfolio/overview.htm

That is just background information. The graph and company's information "appear" to be excellent, however there are several things to note. First, UED have calculated their average growth rate between 2004-2010 to be 1.16, in fact they expect a slight drop over the next 2-3 years. Second, the merger between Duquesne and Macquarie has been completed but I can't find out what percentage DUE now hold. I'll try and find out more today. Finally, the company's interest in the Dampier-Bunbury pipeline will be slightly reduced in the future.

Even taking the potential constraints into consideration, it appears to be a stock well worth considering, the fact that it is a tripled stapled security with a distribution of 11% (from memory) is not to be sneezed at, any growth is an added bonus.

From a big picture perspective, I think that the 70% gas transmission and distribution will be the winning part of the business, natural gas produces less carbon emissions and Australia has 150 years supply, it will be the interim energy source of choice while the renewable energy industries gear up.

I don't think there is much point commenting on the graph at the moment, only to say that there seems to be quite a lot of interest which may be because people think its a great stock or want to move into something more defensive.
One of your squeezes on a weekly chart might be a nice entry point. Bear in mind DUE has risen between 20-25% in the last 6 months.

Regards
Kate

PS It would be a nice complimentary stock to ORG