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Articles by Donald E. L. Johnson

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Today is Tuesday, October 25, 2016


PEP: PepsiCo’s new CEO gets glowing review from Fortune; how’s the stock doing?

Indra Nooyi has been CEO at Pepsico (PEP) for about 18 months and is getting glowing reviews from, among others, Betsy Morris at Fortune magazine. And at Seeking Alpha, several articles recommend the stock as a good dividend and defensive play in a bear market and slowing economy. The one thing that has analysts worried is whether PEP can manage and profit from rapidly rising food costs.

So far, the markets don’t seem to be as impressed as some analysts and journalists who like the way the company is moving into healthier foods and drinks and becoming more aggressively global. Daily, weekly, monthly and point and figure charts are saying PEP is a sell, with a bearish downside objective of $52 on the $70.28 stock. PEP January 2010 70 calls say the stock will be worth $79 before the options expire, while the January 2010 70 puts warn that the stock could fall to $61.50. In other words, investors could be paying a high price for PEP’s 2.1% dividend and “protection” against a bear market. Analysts have a somewhat weak buy rating on the stock.

There is no question that PEP’s statistics are pretty impressive. At, PEP gets an A for sales + profit margins + return on equity. Its earnings per share have been growing faster than 72% of publicly traded companies, and its ranks for relative strength (79) and industry group strength (B) are good. But PEP’s accumulation/distribution rating is only a D, meaning institutional investors aren’t buying at the moment. Morningstar gives the stock three out of a possible five stars because it is near the independent advisory firm’s fair value estimate of $77. Morningstar says consider buying PEP at $65.50 and consider selling at $92.40. That’s more optimistic than the options market and point and figure charts.

In any case, Fortune’s article is a good read.

I don’t have a position in PEP, but my investment club does.

This post should not be taken as a recommendation to trade, and I take no responsibility for how others trade this nor any other stock or option. I am not a professional stock analyst nor a registered financial adviser. While I strive for accuracy, I do make typos. Investigate before you speculate.

Posted by Donald E. L. Johnson on 03/05/08 at 07:56 PM

UHS: Why does the market like Universal Health Services?

The market is saying Universal Health Services (UHS) is a buy, and I’m asking why?

UHS, which closed Tuesday at $54.46, down from a 52-week high of $63.40 and up from its low of $46.21, is rising on slightly better than expected earnings that it announced last week. And the company didn’t disappoint with its guidance. Most analysts have a hold on the stock, which says has an estimated fair value of $54; the advisory service says consider buying UHS at $40.50 and selling at $70.20. Both Morningstar and Standard & Poor’s give UHS three out of a possible five stars.  S&P’s target price for the stock is $65. Point and figure charts are targeting $69.

UHS October 50 call options suggest speculators think the stock will touch $57.70 before the contract expires. October 50 puts suggest the stock may fall to $47.15.  Daily and weekly charts are flashing buy signals while monthly charts have been saying sell for about eight months. Click on charts for daily and weekly charts. I also show the charts for other hospital companies, LPNT, HMA and THC.

Long term, the bullish argument for hospital operators is that the aging population

Posted by Donald E. L. Johnson on 03/04/08 at 03:28 PM
StocksStocks MedicalRead More

CAT: Caterpillar looks like a buy

Caterpillar (CAT) looks like it is one of the Dow Industrials that has a good chance to rally once the worst of the bear market is over. In other words, CAT looks like a good watch list stock for market timers who don’t want to buy anything in a bear market.

Caterpillar’s weekly charts flashed buy signals seven weeks ago,  and the stock hit its recent low of $59.60 in mid January, just before it announced its 2007 results. On monthly charts, the stock’s been a sell for five months.

While point and figure charts suggest the stock could go to $90, the January 09 75 call options are pointing to about $82 while

Posted by Donald E. L. Johnson on 03/03/08 at 12:36 PM
StocksRead More

SSYS: Stratasys announces stock buyback

After it announced disappointing earnings and guidance that knocked its stock price down some 18%, the company’s board authorized a $30 million stock buy back.

Buybacks typically used to signal a board’s confidence in a company’s future, but they’re often taken as signals that the companies don’t have anything better to do with their money. In any case, the stock bounced off it’s Tuesday lows.

Posted by Donald E. L. Johnson on 02/28/08 at 04:52 PM

Gates Foundation portfolio owns no technology

Bespoke Investment Group explores the Gates Foundation’s holdings here.

Posted by Donald E. L. Johnson on 02/26/08 at 01:09 PM

SSYS: Stratasys plunges on disappointing results, guidance

Stratasys Inc. (SSYS) plunged nearly 18% on disappointing earnings and guidance for 2008, making the stock a sell for short-term investors and a buy for long-term optimists.

Fourth quarter earnings grew an especially disappointing 11%, bringing full-year earnings growth down to 22%. Guidance reflects the company’s obvious uncertainty about the world economy and capital spending. SSYS management said it’s earnings growth in 2008 will be somewhere between 16.8% and 28.8%. If SSYS achieves the low end of its range, or 77 cents a share, it’s forward PE is 22.6. If it hits the high end, or 85 cents, it’s PE is 20.48. This means it’s PEG ratio is somewhere between a cheap 0.97 and a relatively attractive 1.58, based on the latest price of $17.41, which is down 44.6% from its 52-week high of $31.45. Point and figure charts suggest the stock is headed for $9. Click on chart to see weekly and point and figure charts.

In it’s press release, SSYS said:

Posted by Donald E. L. Johnson on 02/26/08 at 08:23 AM
StocksRead More

STZ: Constellation Brands looks interesting but technically weak

Peter Lynch wrote more than 20 years ago that investors should buy the stocks of companies that make products they like. Last night, we got a taste of some pretty nice Mondavi wines made by Constellation Brands (STZ) at an American Institute of Wine and Food party, and a financial advisor jovially recommended, “Buy the stock.” Lynch is right if the stock’s going up and looks good technically and fundamentally. But it looks awfully early to be barreling into STZ even though it looks undervalued in some ways.

Interestingly, only a couple of the wine snobs at the Opus restaurant in Littleton, CO, had tasted Mondavi wines recently, and we were pretty pleasantly surprised by the wines served with an incredible multi-course gourmet meal created to replicate the menu featured on Julia Child’s first TV show back in about 1960.

But this morning reality sets in. Technicallly, the stock’s charts are very weak with the point and figure charts pointing to a $12 price, down from this morning’s $20.67, which is up about 3% from Friday’s close. Click on this chart to see daily, weekly and point and figure charts.

Then look at what’s been published on Seeking Alpha over the last year,  starting with this bearish comment by managers of the Oak Value Fund:

Posted by Donald E. L. Johnson on 02/25/08 at 09:07 AM
StocksRead More

Health care stocks among the weakest

The health care sector isn’t looking very hot, notes Bespoke Investments.

Posted by Donald E. L. Johnson on 02/22/08 at 10:42 AM
StocksStocks MedicalPermalink

Stocks aren’t cheap; earnings forecasts are inflated; PEs are not low

Stock touts frequently appear on CNBC advising viewers to buy stocks in a bear market because price earnings ratios are down from recent highs and, for many stocks, they are historically low. Don’t listen to them. When somebody says buy a stock because the PE is low, you know they are simply touts, not analysts, and they have no credibility. Turley Muller over at Financial Alchemist makes this point very well. Every investor should read his piece and remember it.

Posted by Donald E. L. Johnson on 02/21/08 at 07:55 AM

EBAY: Good time to buy eBay leaps?

Daily charts on eBay (EBAY) may be hinting that the stock is bottoming out, presenting a buying opportunity for bottom fishers and buyers of long term options, or LEAPS.

But those whose rules prevent them from buying until we’re out of our bear market and until weekly charts and daily charts say buy may need to be a bit more patient.

Technical indicators on EBAY’s daily charts are giving buy signals. The weekly charts are still bearish. And the monthly charts turned bearish a couple of months ago. Point and figure charts suggest the stock is headed lower to about $21.

What’s interesting is that EBAY’s options look cheap. Implied volatility of 0.392 is way below historical volatility of 0.671. And both implied and historical volatility are below their 12- and 24-month highs, although they look high compared with some other stocks.

So traders who are at all optimistic that the bear market will end during the next 12 months and that eBay’s stock will recover during the next 12 months might want to look at the EBAY Jan 2010 35 calls, which are trading for about $3.40 a share. That’s about 12.5% of the current stock price of $27.24. Thus, call buyers are speculating that the stock is worth more than $38.40 a share, and there is a 55% probability that the stock will touch that price before the options expire.

The trick, of course, is to manage losses. Where do you put the stop loss? A 8% drop in the stock price is $2.18 per share, or 64% of the option price. Since options are volatile, it often pays to let an option trade lose more than you would let a stock drop from the buy point before you’d sell it. If the stock drops with the overall market, be more patient. If it drops on bad EBAY news, I’d cut my losses as soon as possible.

Leaps options markets are thinly traded, which makes it difficult to take profits and to cut losses at the prices you want. EBAY’s Jan. 2010 35 calls are relatively liquid with an open interest of 2,098 contracts, but only traded two contracts Wednesday and the bid of 2.80 is pretty far from the offer of 3.40. Typically, you give the market maker two thirds of the spread, which means you’d try to buy at $3.20.

If you’re a bear on EBAY, the EBAY Jan 2010 25 puts are $3.60 bid, $4.00 offered with an open interest of 2,275 contracts but virtually no trades nor liquidity. This means put buyers think the stock is going to about $21, or where the point and figure charts say they’re headed.
Ebay charts are here.

I don’t have a position in EBAY, and I’m not a professional investment advisor. I accept no responsibility for how you trade. Do your own research before trading.


Posted by Donald E. L. Johnson on 02/20/08 at 03:26 PM

STJ: St. Jude Medical looks like a hold for now

St. Jude Medical (STJ) looks like a potentially strong stock over the next 12 to 18 months, and several services have buy ratings on the medical devices maker’s stock. Options traders appear optimistic.

But there are detractors, too, who are worried that the company is overly optimistic about its organic growth prospects over the next five years. And they’re saying the chances the company will be an acquisition target anytime soon are pretty small.

Technically, STJ is one of the strongest


Posted by Donald E. L. Johnson on 02/18/08 at 08:34 PM
StocksStocks MedicalRead More

You may not want to replace your Blackberry with a Palm Treo

Having suffered two Blackberry server outages, some small business owners may be looking at alternatives, including PALM’s Treo, as noted in a previous post.

Beware. reports customer satisfaction with PALM’s phones is horrible while satisfaction with the Apple iPhone is unbelievable.

And I’ve got two years to go on my Treo contract? Sigh.

Hat tip to

Posted by Donald E. L. Johnson on 02/14/08 at 08:38 AM

How would Microsoft acquisition of Yahoo affect small businesses?

Microsoft is in the process of of acquiring Yahoo.

For investors, the only question is whether MSFT will pay $33 or $35 for YAHOO, whose board wants about $40 per share.

Owners and managers of small businesses, however, are asking other questions. (click on head)


Posted by Donald E. L. Johnson on 02/14/08 at 07:21 AM
Small BusinessStocksTechnologyRead More

Bottom fishers looking at Citigroup, Pfizer as dogs of the Dow

A private money manager, Parker Hills, is watching two depressed, high-yielding stocks, Citigroup (C) and Pfizer (PFE), but he’s not ready to buy, yet. He sees them as options plays once the market shows signs of recovery.

At this point, the market is looking very weak and could just as easily go 5% to 10% lower as rally during the next few months.

Posted by Donald E. L. Johnson on 11/23/07 at 03:13 PM
StocksBank StocksPermalink

Wachovia director is doing some serious buying; taken by investors as a good sign

Todd Sullivan writes at that one of Wachovia’s (WB) directors has become the company’s third largest individual shareholder with some serious buying. This is considered an important vote of confidence in the bank at a time when investors aren’t quite sure about the financial conditions of the major banks.

Posted by Donald E. L. Johnson on 11/23/07 at 02:43 PM
BanksStocksBank StocksPermalink
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