Tuesday, February 7, 2012

Today lets look at Goldcorp (G-T or GG-N).
For discussion and to determine the entry and exit points.
By using the historical P/E ratio one can determine what the entry and exit positions should be.
G for the past 10 years has had an average P/E trading range of 32.64 (high) and 23.42 (low).
G also has had some wild swings in the past, P/E value for example in 2004 G had a high P/E ratio of 64.44 and a really low P/E ratio of 9.3 in 2001 .
As this extra large range has been removed to smooth out the ratio a bit. So using the past 3 years the average P/E 22.26 (high) and 18.41 (low) was used. Now your wondering why I don’t use the CF/E well, I did it is very close to the same ratio.
G has over that time had an average annual EPS growth well over 20% when averaged over the years. Knowing or at least estimating future earnings one can estimate future share price. In this case G should earn about $2.53 in 2012 and using the average P/E the estimated trading range should be 56.36 (high) and 46.60 (low)
If your wondering about dividend growth? Yes G has had growth in that area as well.
For the past 11 years (3 years average) G has increased its dividends by more than 20%.
It should be noted that G has had growth spurts in dividend increases and not in steady increases.
For years G hovered around the 1% mark on the dividends since 2001. Since G has been returning a small portion of its earning back to its share owners with todays P/D G has had a low for 2011 of .77% and a high of .82% it is estimated that G will increase its dividend in 2012 to 48 cents from 37 cents (2011).
Now on to how to trade, As I already own 1000 shares of G (38.65) I’ll be writing a call at my price estimates in this case I’m looking to write the Call Option at $56. It would be best to sell the call for a shortest term possible. With a current price of $47.33 the option price of 56 is far out of the money and since G trades on the Montreal (M-X) and the CBOE exchanges the prices can vary.
The M-X for July call at 56 is $1.09 per share and the CBOE July calls for 57.50 with a premium of $1.10
For me the CBOE’s contract for 57.5@ 1.10 would be the best price.
If you are wondering about what the returns would be as of July (assuming) not called away it would be 2.85% , if called away it would be (in my case) 51.58% and both before commissions deducted.
I’d be using caution here as I believe that the general market is going to do a pull back. I suspect that will decline until the first week of April and that would possibly be the best time to sell this company closer to its higher price range.