Stock Market
All comments and Stock Market Ananlysis are made by Guy Brumley. Guy has been trading the Stock Market daily since 1992.
Trading, evaluating stock prices and predictions
Stock Market Commentary 4-3-2009
This market movement is similar to a billiard ball coming to rest on a pool table. It propels in one direction and moves along that path until it a)runs out of gas, or b) is altered by an object in its way. The last 4 weeks the market path has been up. What the next object in its path is, is the $64 question. That question brings us to Technical Analysis, the art of reading charts, and the hundreds of indicators that slice and dice the history depicted on the chart. There are moving averages, support lines, resistance lines, Fibonacci retracement, Bollinger Bands, and dozens of others.
Some of the current technical indicators are as follows:
The next overhead resistance comes from a line drawn using the highs of November and January, and indicates 8275. The 50-day moving average is at 7633, and the 200-day MA is at 9400. That leaves a lot of room for the market to move higher, if we get good earnings reports over the next two weeks. On the other hand, if earnings reports suggest a weaker year than is now expected, then the downside numbers are 7633 (50 dma), and the 7250 support line.
Another approach to trading is fundamental analysis. This values a stock based on how much money the company earns. Yesterday, we reviewed AFAM based on its fundamentals. (Note – the graph of AFAM also demonstrated a nice Bollinger Band play. The technical side of the AFAM trade suggests the stock should run to its 50 day MA at 24.55.)
Today we look at CELG. The stock price we will use is $40.00; the float is 459 million shares. That makes the market cap $40.00 per share x 459 million = $18,360,000,000.00 or $18.3 billion to buy the entire company. The company’s revenue last year was $2.23 billion. Its earnings were $.60 per share ($.60 x 459 million = $275 million). The pe ratio is 18.3 billion divided by 275 million = 66, meaning it would take 66 years of 275 million per year earnings to buy the company. To make this price work in a five-year pay back, the earnings would need to grow at a rate greater than 25 % per year. Looking at the growth rate of earnings over the last three years, we have $.20, $.60, and $1.20. This projects $2.40, $4.80, $9.60 for the next three years. This calculates to $7.7 billion in the next three years. Add 2 more years at 19.20 and 38.40 earnings = $26.4 billion in the fourth and fifth years. Therefore, the last two years are very hard to swallow. I would not be too carried away with this stock until I had a more solid handle on future earnings.
CELG has a number of new drugs coming to market. I have heard estimates of 500 to 600 million in revenues per drug. I need to see the profit margin they expect and the exact number of drugs coming to market each of the next five years.
Meanwhile, at 7:30 CDT tomorrow we get the employment numbers, and a dose of reality. How high can we price in the return of prosperity to the current economy. Remember, bear market rallies are quick and severe. The market will probably take profits ahead of the weekend, and the beginning of earnings next week.
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