TCKB, TLM, PAA, SLW – Something’s Going On, More Deflation News Ahead?

Canadian cyclical companies have taken a beating in the last few weeks.  When markets are moving, especially downward as they have been, there is nothing like reviewing model price charts of bell weather stocks and the new 52 week low list to get a feel for what is going on.

Let’s look at a few companies and I will make comments on each.

Teck Cominco (TCKB)

Teck Cominco with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of TCKB subsequent to this post will be maintained on Facebook, here.

Certainly TCKB can be considered a bell weather stock and I’m always fascinated on what TCKB is doing.  As you can see on our model price chart, TCKB has broken through EBV, which we calculate at $32.29.  We highlight TCKB, breaking EBV back in October.  Observe the weekly price bar of TCKB when the stock broke EBV back in October.  You can see the volatility, and the close for the week was half way through the zone.  This is typical of high profile stocks making a negative transit for the first time.  The second transit, which is just occurring, usually happens with a whimper.   Some would call it resignation or defeat.  THIS IS NOT A GOOD SIGN.  We would take this as a signal as lower prices for TCKB is ahead.

Remember no recommendation here, just a high probability event.

Talisman (TLM)

The last three weeks have not been kind to TLM.  What is significant to us is the negative transit through EBV.  The last time this occurred was back in 2008.  Keep in mind back in 2006 TLM was trading over EBV+5.  (That would place TLM close to $40 in today’s valuation dollars.)  The negative transit of EBV does suggest that TLM will see single digits for its’ stock price perhaps in the not so distant future.

Talisman with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of TLM subsequent to this post will be maintained on Facebook, here.

Pan American Silver (PAA) and Silver Wheaton (SLW)

In a blog last week I highlighted three major gold producers, ABX, NEM, and GG.(here)  So, let’s highlight two silver companies Pan American Silver and Silver Wheaton.

Pan American Silver (PAA)

As you can see PAA, has broken EBV or $16.45.  Like the gold stocks, which I highlighted, the precious and semi-precious metals categories have been hard hit in recent weeks.  Certainly since the financial crises of 2008, money had poured into to hard asset categories including gold and silver securities, which gave these securities excessive valuations peaking at the end of 2011.  These excessive valuations are being reversed and these stocks, both gold and silver companies, are under distribution.

Pan American Silver with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of PAA subsequent to this post will be maintained on Facebook, here.

Silver Wheaton (SLW)

Silver Wheaton broke EBV+5 couple of weeks ago.  SLW is very expensive, valuation at EBV+5, and potentially has a long way to fall.  Keep in mind SLW started its’ run in 2008 from EBV-2!  If SLW were to go back to EBV-2, looking at today’s balance sheet that would be a price of $5.81.  What I think is great about model price charts, is that, it gives investors perspective.   I’m I saying SLW will drop to $5.81, no.  I’m saying SLW traded at EBV-2 before, and it could happen again.  So if you are long the position, SLW has to transit through 6 EBV levels to get there.  This should help you manage the position if SLW were to get to EBV-2.

Silver Wheaton with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of SLW subsequent to this post will be maintained on Facebook, here.

Conclusion

The market has been brutal to cyclical companies over the last few weeks.  I will highlight a few stocks each week that catch my eye, and that I want to expand on, especially if there is further erosion in the Canadian markets.

You have probably noticed that in the four situations that I have highlighted, model price was higher than where the stock was trading – sometimes materially so.  We see this a lot in cyclical companies.  Model price comes from analysts’ earnings estimates, and sometimes-fundamental analysts’ are slow to react to the changing market conditions or what is going on in the commodity markets.  As companies negative transit through EBV lines, the market is communicating well ahead of what the analysts’ will perhaps say down the road or what the company communicates to analysts’ about their future earning estimates.

The news isn’t all bad.  It is healthy to remember, today’s falling stock prices becomes tomorrow opportunities.  Keep watching these names and their respective model price charts for clues about trading strategies and or potential bottoms.

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