Hi all over the past months I have gotten a whack of folks claiming that my analyst are to complex so for the past month I have rewritten most of my posts. So without further delay I'll repost my rewrites..

Thx everyone for the comments

Lets look at EnCana (ECA) today. It trades on the TSX and on the big board the NYSE. For discussion and to determine the entry and exit points. Using P/E and CF/S
By using the historical P/E ratio and CF/S ratio one can determine what the entry and exit positions should be and I’ll look at the dividend ratio (D/S) for this company.
ECA has been a publicly traded company for more 10 years and ECA is a unconventional gas company.
 So here we go: for the past 3 years (excluding 2011) ECA has had an average P/E trading range of 12.4 (high) and 8.43 (low). Over a longer term ECA had an average P/E ratio of 18.7(high) and 7.6(low) over the past 10 years (excluding 2011). ECA has also had some wild swings in the past, for example P/E values in 2011 ECA had a very high P/E ratio of 201.5 and a low P/E ratio 2.3 in 2008. With a current P\E of 255.3 it looks like ECA is way ahead of its self based on the ranges.
 ECA has over time had an average annual Earnings growth of 15% over the past 10 years with some bumps along the way. The Earnings growth for ECA over the past 3 years paint a very different picture as the Earning growth has fallen into the negative.
For the purposes of this analysis I am using the average of a 0% increase for 2012 to determine what ECA should be valued at.
Knowing or at least estimating future earnings you can estimate the share price. In this case ECA should earn about $1.94 in 2012 and using the average P/E the estimated trading range should be $24.06 (high) and $16.36 (low).

ECA is a dividend payer which it started paying in 2002. Over that time ECA had increase its dividend up to a very nice level and in 2010 ECA began to chop at its dividend. Lets hope that ECA doesn’t continue slashing its dividend in the coming quarters. I am projecting that ECA’s dividend will remain at .80 per share which is paid quarterly.
ECA’s dividend yield for the past 3 year average Yield ranged of 2.87 (high) to 4.39 (low). Currently ECA is paying a 3.95% based on its current price $20.49.
Looking at the math for the dividends and working it backwards the dividend would support a share price of $27.86 (high) and 18.24 (low). I don’t believe ECA’s price will fall to the yield range of 7.56% like in 2008. If that were to occur I would suspect that ECA would cut its dividend again.

Looking at the price per cash flow ratio (P/CF). ECA has increased its average CF/S by 8.32% over the past 10 years. ECA’s 10 year P/CF ratio is 18.7 (high) and 7.6(low). To me this longer term average is much to rich as I prefer the 3 year average with 12.4 (high) and 8.43(low) which I’ll use to determine the estimated price.

This gives ECA a share price based on a cash flow of $31.85 (high) and $20.47 (low). With todays price of $20.49 it appears to be at the lower end of value based on this price. CF/S for 2012 is estimated to be $5.16 per share which is an increase of 5% over 2011. The first quarter report states that ECA has had a 6% increase Cash flow in Q1.

To sum it up: current price $20.49
P/E bottom of the price range $16.36
D/S near the bottom end of range $18.24.
CF/S is at its lowest estimated price range $20.47

With ECA it’s a matter of trying to predict the future price of its finished product, in this case Natural Gas. With Natural Gas off last years ultra low price it maybe a time to look at ECA as a longer term investment.
ECA options trades on the www.x-m.ca and on the www.CBOE.com.

As I am looking to get a position in ECA I’ll write Put at my estimated price. In this case I’m looking between $16 and $20. (Closer to $16 ) Looking at both exchanges you could trade at either and be happy with the exchanges. In this case I’ll favour the Montreal exchange over the CBOE. So I’ll write 10 Puts for the October expiry with a strike price of $17, collecting the premium of $.65 per share or $650.00 before commission. That works out to be 3.8% for this 4 month trade, 11.4% annual.

Looking on the Call side, if you purchased here at $20.49 and sold the Covered Call at 21 for the current month of July for the premium of $.65, that would yield you a nice return for the 4 weeks as the worse case would be a 3.1% from the premium. The best case would be that it gets called away at $21 dollars and earning you a 5.6% gross return(before commission) over the next 4 weeks.

Or if your fairly sure that ECA is under priced at this price level, you could pick it up here and sell further out. Having a look at the October 23 Calls, having a premium of .85 cents. Your worst case would be collecting the .85 cent premium and at least one Dividend of .20 cents, gives a return of 5.12%. With the best case being that it gets called away at $23 dollars making your gross (assuming only one dividend collected) being $3.56 per share or 17.37%. Not bad for a 4 month holding period !

Lets look at Pengrowth Energy today. It trades on the TSX under the symbol (PGF) and on the big board the NYSE under the symbol (PGH).
For discussion and to determine the entry and exit points. Using the companies P/E and CF/S
historical data to determine the P/E ratio and CF/S ratio so that one can determine what the entry and exit positions should be and I’ll look at the dividend ratio (D/S) for this company as well.
PGF has been a publicly traded company for more 14 years, Pengrowth is not a direct oil and gas company but a company that is a drilling operator (as described on Globe and mail).
So here we go: for the past 3 years PGF has had an average P/E trading range of 37.3 (high) and 21.1 (low). Over a longer term PGF had an lower average P/E ratio of 22.3(high) and 14.1(low) over the past 15 years. PGF has also had some wild swings in the past, for example P/E values in 2011 PGF had a high P/E ratio of 55.8 and a low P/E ratio 5.4 in 2008. With a current P\E of 31.1 it looks like PGF is on the top end of the price range. PGF's average annual Earnings growth of 24.1% over the past 15 years with some bumps along the way. On the short term PGF has had a Earnings growth about a third of what is was in 2008.
 For the purposes of this analysis I am using the average of a 0% increase to determine what PGF should be valued at.
Knowing or at least estimating future earnings you can estimate the share price. In this case PGF should earn about $0.36 in 2012 and using the average P/E the estimated trading range should be $13.29 (high) and $7.53 (low). Earnings in the first quarter was reported to be 0%.

PGF is a dividend payer which it started paying in 2002. Lets hope that PGF will continue to pay its dividend. I don’t see PGF increasing its dividend in 2012, with the total dividend will remain at $ .84 per share which is paid monthly.
The issue with this company is that PGF upped its dividend amount by 10% in 2011 but, it also increased the number of shares, in effect cancelling any dividend increase.
PGF’s dividend yield for the past 11 years ranged from 10.35 (high) to 17.38 (low). Currently PGF is paying a 11.75% based on its current price $7.15. For the shorter period of the past 3 years PGF had a range of 6.54 (high) and 11.94 (low)
Looking at the math for the dividends and using the last 3year average, then working it backwards the dividend would support a share price of $12.85 (high) and 7.04 (low).

Looking at the price per cash flow ratio (P/CF). PGF has increased it’s average CF/S by 67.42% over the past 15 years. PGF’s 15 year average P/CF ratio is 8.1 (high) and 5.3(low).
For the past 3 years PGF has had an average CF/S of 0.69 and the P/CF ratio is 7.6 (high) and 4.45 (low)
This gives PGF a share price based on a cash flow of $11.77 (high) and $6.89 (low). With todays price of $7.15 it appears to be at the lower end of value based on this price. CF/S for 2012 is estimated to be $1.55 per share which is an increase of 4% over 2011.
To sum it up: current price $7.15
P/E bottom of the price range $7.53
D/S is near the bottom $7.04
CF/S is near its lowest estimated price range $6.89
Looking at the option side for the trade. On both exchanges PGF and PGH are very very thinly traded. Which makes this company a poor company to trade options on at this time.
PGF options trades on the www.x-m.ca and PGH on the www.CBOE.com.

Lets look at Silver Wheaton (SLW) today. It trades on the TSX and on the big board the NYSE. For discussion and to determine the entry and exit points. Using P/E and CF/S
By using the historical P/E ratio and CF/S ratio one can determine what the entry and exit positions should be and I’ll look at the dividend ratio (D/S) for this company.

SLW has been a publicly traded company for more 10 years, SLW is not a direct mining company but (should we say) a company that provides financing for a percentage of production .

So here we go: for the past 3 years SLW has had an average P/E trading range of 42.1 (high) and 16.6 (low). Over a longer term SLW had an average P/E ratio of 40.85(high) and 16.5(low) over the past 6 years. SLW has also had some wild swings in the past, for example P/E values in 2004 SLW had a high P/E ratio of 262.5 and a low P/E ratio 5.0 in the same year. With a current P\E of 17.5 it looks like SLW is on the bottom end of the price range. SLW has over time had an average annual Earnings growth of 68.96% over the past 6 years with some bumps along the way. For the purposes of this analysis I am using the average of a 15% increase to determine what SLW should be valued at.

Knowing or at least estimating future earnings you can estimate the share price. In this case SLW should earn about $1.82 in 2012 and using the average P/E the estimated trading range should be $74.22 (high) and $29.98 (low). Earnings in the first quarter increased by 20%.

SLW is a dividend payer which it started paying in 2010. Over that time SLW has instilled a payout equal to 20% profit from the previous quarter. Lets hope that the increases continue however I don’t see SLW increasing its dividend in 2012. The dividend will remain at .37 per share which is paid quarterly.
SLW’s dividend yield for the past year ranged from .4 (high) to .65 (low). Currently SLW is paying a 1.328% based on its current price $27.87.

Looking at the math for the dividends and working it backwards the dividend would support a share price of $136.51 (high) and 82.48 (low). Talk about the nose bleed section, this goes to show you that using data from a company with a short history can cause issues in the math and can give you a false sense of value. That is why you must use more then one metric when looking at a company.

Looking at the price per cash flow ratio (P/CF). SLW has increased it’s average CF/S by 67.82% over the past 6 years. SLW’s 7 year P/CF ratio range is 33.34 (high) and 14.17(low).

This gives SLW a share price based on a cash flow of $64.19 (high) and $27.27 (low). With todays price of $27.87 it appears to be at the lower end of value. CF/S for 2012 is estimated to be $1.93 per share which is an increase of 10% over 2011.

To sum it up: current price $27.87
P/E bottom of the price range $29.98
D/S is over its top Price range, way to far out of range.
CF/S is above its lowest estimated price range $27.27

With SLW it’s a matter of trying to predict the future price of its finished product, in this case Gold and Silver. Gold today is trading around $1600.00 per once and SLW’s cost is $303.00 per once and Silver is trading $28.55 per once and the cost is $4.08 per once to produce. Based on these prices SLW does have a pretty good margin spread on its two main product lines.

SLW options trades on the www.x-m.ca and on the www.CBOE.com. If you’re an owner of SLW like I am, I’m looking to sell my position at a price that I would be comfortable with so Looking on the CBOE I see that selling the July 30 calls look good. As my purchase price is just under $30 per share. I’m looking to collect a little cash flow from my share, so I’ll write 10 contracts for July with a strike price of 30 and collect the premium of $.81 per share or $810.00 before commission costs. For writing this 6 week contract I'll collected the premium that works out to be about 2.6% or 22.5% annualized plus dividends.

Lets look a A&W Revenue Royalties (AW.UN) today. It trades on the TSX, for discussion and to determine the entry and exit points. Using P/E, CF/S and D/S.
By using the 3 historical ratios one can determine what the entry and exit positions should be. AW.UN has been a publicly traded company for the past 10 years and provides a range of food and beverage products.

Over the past 3 years AW.UN has had an average P/E trading range of 12.6 (high) and 9.2 (low). Over a longer term AW.UN had an average P/E ratio of 12.66(high) and 8.69(low) over the past decade. AW.UN has also had some wild swings in the past, for example P/E values in 2010 AW.UN had a high P/E ratio of 14.90 and a low P/E ratio 3.1 in 2007. With a current P\E of 9.9 it looks like AW.UN is on the bottom end of the price range. AW.UN has over time had an average annual Earnings growth of 12.72% (9 years). For the purposes of this analysis I am using the average of a 12% increase to determine what AW.UN should be valued at.

Knowing how to estimate future earnings you can determine the future share price. In this case AW.UN should earn about $2.36 in 2012 and using the average P/E the estimated trading range should be $29.78 (high) and $21.74 (low).

AW.UN is a dividend payer which it started paying in 2002. Over that time AW.UN has increased its dividend by 4.81% annually. Lets hope that the increases continue however I don’t see AW.UN  increasing its dividend in 2012. The dividend will remain at 1.402 per share which is paid monthly.
AW.UN’s dividend yield for the past 3 years range from 7.3 (high) to 9.96 (low). The past 10 years AW.UN had a yield range of 7.95 (high) to 13.22 (low) Currently AW.UN is paying a 6.61% based on its current price $21.18 which is below its historical averages.

Looking at the math side for the dividends and working it backwards the dividend would support a share price of $19.23 (high) and 14.10 (low)
Which makes the current price, look like an expensive buy at todays price.

Looking at the price per cash flow ratio (P/CF). AW.UN has increased it’s average CF/S by 7.86% over the past 9 years. AW.UN’s 10 year P/CF ratio is 12.24 (high) and 8.49(low) however the three year average gives a different picture. The current 3 year average is a slightly higher ratio of 12.74 (high) and 9.3(low). I would be looking at AW.UN as a matured company with stable revenues not as a start up or some other fast growing company.
This gives AW.UN a share price based on a cash flow of $27.78 (high) and $20.30 (low). With todays price of $21.18 it appears to be at the lower end of value based on this price. CF/S for 2012 is estimated to be $2.18 per share.

To sum it up: current price $21.18
P/E bottom of the price range $21.74
D/S is over its top Price range $19.23
CF/S is above its lowest estimated price range $20.30

In short wait for the summer to pick up this stock or wait till it lowers its self so the the dividend yield is closer to 8.5% mark or more.

AW.UN is not option traded at this point and the Dividend is not favoured by the Canadian tax department (CRA) so look for adding this company to your RRSP or TFSA vs your standard trading account.

Have a company that you wish to discuss, lets here it, just provide me the full name and the stock symbol.

In todays discussion lets compare McDonalds (MCD) to Tim Hortins (THI). Both companies are in the food business, selling very well known products. MCD is a global leader and player, where as THI is a much smaller company with the majority of their operations in Canada and currently only a few stores in the US. When comparing the maximum number of their target consumers it’s very clear that MCD is the clear winner with nearly 6 billion people to serve vs. THI’s less than 40m potential customer base. THI has only been a publicly traded company since 2004 so the historical data is very short, unlike MCD which has been publicly trade for decades.

Now onto the numbers, I’m sure that most people love this part. Starting with THI’s earnings, THI’s has been growing it’s earnings at a growth company rate of 22.31% annually for the past 8 years. It is estimated that THI will maintain that growth going forward by 20% in 2012.

THI’s P/E range, over the past 6 years has had an average range of 22.52 (high) and 16.83 (low). With the past 3years being 18.57 (High) and 14.27 (low) much lower then what is expected and this is a clear indicator that THI has matured from a growth company at a very quick pace. It would seem that THI would need to either grow the number of stores available at a cost to the bottom line (short term) or remain in it’s current maturing state and hoping that a competitor doesn’t enter the market and remove THI’s consumer base. The math to the share price based on the P/E works out as $52.36 (high) and $40.23 (low) and with Fridays close of $53.55 THI is still ahead of its self on the share price.

If we compare THI’s CF/S is a better indicator to determine what the share price should be. So looking at the CF/S growth rate of 13.36% over the past 6 years, it is estimated that THI will maintain a CF/S growth rate of 13% for 2012. Comparing the P/CF ratio, THI’s 6 year range of 17.55 (high) and 13.09 (low) and the 3 year average THI has a range of 14.24(high) and 10.92 (low). Using the three year average we can calculate the share price based on CF/S and its share price range. The estimated share price range for 2012 worked out to $50.04 (high) and $38.37 (low) . Again THI is showing that it’s over priced based on Fridays close of $53.55 and is off its 52 week high of $57.91.

Comparing the two price ranges between the P/E and the P/CF ratio’s the buy price for THI is between $38 and $40 dollars and the sell price is between $50 and $52 dollars.

Now on to McDonalds (MCD), we’ll first look at its earnings growth. MCD’s earnings growth over a 16 year period has averaged 15.81% with the past 3 year average of 11.94%.
For this review we’ll be assuming an earnings growth of 11.9% for 2012.

MCD’s P/E range, over the past 16 years has had an average range of 19.84 (high) and 14.31 (low) with the past 4 years being 17.6 (High) and 12.87 (low). The math to the share price based on the P/E works out as $103.80 (high) and $75.88 (low), with Fridays close of $86.71 MCD is priced near the mid range.

If we compare MCD’s CF/S which is a better indicator as to where the share price should be. So looking at the CF/S growth rate of 12.08% over the past 18 years and 10.96% over the past 3 years, it is estimated that MCD will maintain a CF/S growth rate of 10% for 2012. When comparing the P/CF ratio, MCD has a 19 year range of 15.47 (high) and 10.6 (low) and for the 4 year average of 13.55(high) and 9.91 (low). Using the four year average we can calculate the share price based on CF/S and its share price range, the estimated share price range for 2012 worked out to $100.91 (high) and $73.87 (low) . Again MCD is showing that its shares are priced near the mid range and based on Fridays close of $86.71 it is well off its 52 week high of $102.22.

Comparing the two price ranges between the P/E and the P/CF ratio’s the buy price for MCD is between $73.87 and $75.88 dollars and the sell price is between $100.91 and $103.80 dollars.

Last point to look at is the yield on the dividend if you purchase the stock at these prices. For THI you’ll get the current dividend of $0.84, from that you’ll get a yield of 2.15% with a share price of $39.

For MCD you’ll get the current dividend of $2.80, from that you’ll get a yield of 3.74% with a share price of $74.88.

For me I would be looking at McDonalds as the better company.

See my earlier notes for the option trades on these two companies.

Tim Hortons (THI)

Lets look at Tim Hortons (THI) today. THI trades on the TSX and the NYSE. For discussion and to determine the entry and exit points. Using P/E and CF/S
By using the historical P/E ratio and CF/S ratio one can determine what the entry and exit positions should be and I’ll look at the dividend ratio (D/S) for this company.

THI is a public company that provides a range of food and beverage products. So here we go: for the past 3 years THI has had an average P/E trading range of 18.57 (high) and 14.27 (low). Over a longer term THI had an average P/E ratio of 22.52(high) and 16.83(low) over the past 6 years. THI has also had some wild swings in the past, for example P/E values in 2010 THI had a high P/E ratio of 11.80 and a low P/E ratio 8.5. With a current P\E of 23.03 it looks like THI is on the top end of the price range. THI has over time had an average annual Earnings growth of 22.31% over the past 6 years. For the purposes of this analysis I am using the average of a 20% increase to determine what THI should be valued at.

Knowing or at least estimating future earnings you can estimate the share price. In this case THI should earn about $2.82 in 2012 and using the average P/E the estimated trading range should be 52.36 (high) and 40.23 (low).

THI is a dividend payer which it started paying in 2006. Over that time THI has increased its dividend by 25.01% annually. Lets hope that the increases continue in fact THI has already increased its dividend in the first quarter of 2012 to $0.21 from $0.17, that is a increase of 23.5%.
THI dividend yield for the past 3 years range from 1.20 (high) to 1.58 (low). The past 6 years THI had a yield range of 0.91 (high) to 1.22 (low) Currently THI is paying a 1.50% based on its current price $54.35 which is above its historical average. It is estimated that THI will increase its dividend to $0.84 per share in 2012.

Looking at the math for the dividends and working it backwards the dividend would support a share price of $69.91 (high) and 53.12 (low)
Which makes the current price, look like an attractive buy.

Looking at the price per cash flow ratio (P/CF). THI has increased it’s average CF/S by 13.36% over the past 6 years. THI’s 6 year P/CF ratio is 17.55 (high) and 13.09(low) however the three year average gives a different picture. The current 3 year average is a much lower ratio at 14.24 (high) and 10.92(low). Could this be a sign that THI is maturing in it’s current market?
This gives THI a share price based on a cash flow of $50.04 (high) and $38.37 (low). With todays close of $54.35 it appears to be over valued at this price. CF/S for 2012 is estimated to be $3.51 per share.

To sum it up: current price $54.35
P/E over top of the price range $52.36
D/S is near its low Price range $53.12
CF/S is above its estimated price range $50.04

Now on to, how to trade, as I’m looking to purchase shares of THI I would be writing a put near my price estimates. In this case I’m looking to write a Put Option at $35 on the www.cboe.com and I am looking to sell 10, Oct 2012 Put contracts for the 35 strike price with collecting the premium of $.40 /share. I’ll be collecting the premium of $400 before trading costs. If the share price falls to my price level, the Dividend rate would rise to 2.4%.
If your wondering on what the return would be? 35000 /400 = 1.14% at an annual rate of 2.28%

Lets look at Microsoft (MSFT) today.
This posting is open for discussion and to determine the entry and exit price points by using 3 different methods. These three methods use the historical P/E, CF/S and the dividend (D/S) ratios. Please note that there is a ton of ratios out there.
Definitions of the following terms used:
P/E. Price divided by its earnings, which shows what multiple that a investor is willing to pay for $1 dollar of earnings.
http://www.investopedia.com/terms/p/price-earningsratio.asp#axzz1ywxwNlkP
CF/S is the same as earnings except that its referring to the company’s ability to generate cash.
http://www.investopedia.com/terms/c/cashflowpershare.asp#axzz1ywxwNlkP
D/S or Dividend per share. For this ratio you would use the dividend yield formula.
http://www.investopedia.com/university/ratios/investment-valuation/ratio7.asp#axzz1ywxwNlkP
Using these historical ratios a person can estimate what the stock price range should be.
By comparing the 3 year average vs a longer term (10 year average or more) can also help to determine where the market believes the company is in its life cycle, which includes: start up (venture), growth or mature company.
Microsoft trades on the Nasdaq under the symbol (MSFT). MSFT has been a publicly traded company for more 10 years. MSFT is a computer software company and sells its products world wide.
So here we go: for the past 3 years MSFT has had an average P/E trading range of 14.53 (high) and 9.37 (low). Over a longer term MSFT has had average P/E ratio of 52.11(high) and 30.57(low) over the past 19 years. MSFT has also had some wild swings in the past with P/E values for example, in 2000 was at a high P/E ratio of 70.6 and a low P/E ratio 8.4 in 2011.
MSFT’s average annual Earnings growth of 19.51% over the past 6 years and 27.38% over a 14 year period. For the purposes of this analysis I am using the average of 19.51% increase to determine what MSFT should be valued at.
By estimating future earnings you can estimate the share price. In this case MSFT should earn about $3.20 in 2012 and using the average P/E the estimated trading range should be $46.52 (high) and $29.98 (low).
MSFT is a dividend payer which started in 2003. Over the past 3 years MSFT has increased its dividend by 12.53% annually, for the past 9 years MSFT has increased its dividend 39.25% compounded. Lets hope that the increases continue. MSFT’s dividend yield for the past 3 years ranged from 1.82 (high) to 2.8 (low). Currently MSFT is paying a 2.70% based on its current price $29.75. It is estimated that MSFT will increase its dividend to $0.67 per share in 2012.
Which makes the current price look attractive to buy.
Looking at the price per cash flow ratio (P/CF) MSFT has increased its CF/S with its 15 year CF/S ratio of 31.69 (high) and 18.77(low) however, the three year average gives a different picture. The current 3 year average is much better at 12.39 (high) and 8.0(low) Which gives MSFT a share price based on a cash flow of $54.57 (high) and $29.42 (low). With todays close of 29.75 is it appealing that its very near it’s estimated low price and a CF/S for 2012 of $3.68 per share. MSFT is closer to it’s low price based on its CF/S
Now on to, how to trade, as I’m looking to purchase shares of MSFT I would be writing a put near my price estimates in this case I’m looking to write a Put Option at $28 on the www.cboe.com So I’m looking to sell 10 June 2012 Put contracts for the 28 strike price and collect the premium of $.30 /share.
If your wondering on what the return would be? 28000 /300 = 1.07% at an annual rate of 12.86%
If you bought it today at the current price of $29.75 and wrote the call for one month June with the strike price of 30 dollars and a premium of $0.65 you would collect 65 dollars per contract for the premium and an additional $0.25 on the shares price increase. If MSFT was called away it would generate 3.02% for the month or 36.24% annualized. "Before fee’s"

Lets look at Telus (T), trades on the Toronto and (TU) on the NYSE.
For discussion and to determine the entry and exit points. Using P/E, CF/S and D/S
By using the historical P/E Ratio, CF/S ratio and the D/S ratio, one can determine what the entry and exit positions should be.
T is a public company with known products and services on the telco arena.

So here we go: for the past 3 years T, has had an average P/E trading range of 14.07 (high) and 10.4 (low). Over a longer term T, had an average P/E ratio of 19.75 (high) and 12.48 (low) over the past 13 years.

Telus has over time has an average annual Earnings growth of 14.07% (6 years) and over the past 3 years as had a more consistent growth rate of 8 %. For the purposes of this analysis I am using a 3 year average increase to determine what T should be valued at.

Knowing how to estimate future earnings you should be able to estimate the future share price. In this case T should earn about $4.04 in 2012 and using the average P/E the estimated trading range should be 56.82 (high) and 42.01 (low).

Looking at the price per cash flow ratio (P/CF) T has increased it’s CF/S. T’s 12 year P/CF has had a nice a low ratio with 6.45 (high) and 4.19 (low) comparing it to the 3 year average gives a better picture. The last 3 year averages is 5.37(high) and 3.97(low)

T’s CF/S is estimated to raise by 6 % in 2012 to 9.88 per share this gives me a share price range of 53.05 (high) and 39.26 (low).

D/S, dividends per share is another method to help in determinating what a reasonable price is to buy T.
Looking at the price per dividend ratio (P/D) T has a range in this area as well. T’s 12 year P/D is 2.62 (high) and 4.06 (low) however the three year averages give a different picture. The 3 year average is 4.36 (high) and 5.9 (low)

T’s current dividend is estimated to raise by 10% in 2012 to $2.43 per share this gives me a share price range of 55.71 (high) and 41.19 (low) with a current 4.1% implies that T is trading near its 3 year averages and above its 12 year average. I believe that T will remain flat in price for 2012.

Now on to how to trade, as I’m looking to purchase shares of T so I would be writing a put at my price estimates in this case I’m looking to write a Put Option at $42 on the www.m-x.ca. So I’m looking to sell 2 January 2013 Put contracts for the 42 strike price and collect the premium of $.30 /share. I am also a holder of T and I would also sell my current position at $58-60 range. So I’ll write 2 May calls at 60 strike price and collect a premium of $ .40 / share.

If your wondering on what the return would be? The Put = 8400 /60 = 0.71% at an annual rate of 1.5% where as the Call would be 8000/80 = 1% and 12 % for the year plus dividends which would make it closer to 16 %.

　
　

Lets look at TMX Group (X), trades on the Toronto exchange and is the operator of the Toronto Exchange.
For discussion and to determine the entry and exit points. Using P/E, CF/S and D/S
By using the historical P/E Ratio, CF/S ratio and the D/S ratio, one can determine what the entry and exit positions should be.
X is a public company that has well known products.
So here we go: for the past 2 years X has had an average P/E trading range of 14.3 (high) and 10.85 (low).

Over a longer term
X had a average P/E ratio of 21.9 (high) and 11.9 (low) over the past 10 years. X has also had some wild swings in the past, P/E values for example in 2005 X had a high P/E ratio of 31.50 and a 4.4 (low) in 2003 .
X has over time has an average annual Earnings growth of 50.23% over the past 10 years and a more consistent growth rate of 13.6% over the past 3 years. For the purposes of this analysis I am using the 3 year average increase to determine what X should be valued at.

Knowing or at least estimating future earnings you can estimate the share price. In this case X should earn about $3.61 in 2012 and using the average P/E the estimated trading range should be 51.68 (high) and 39.21 (low).

Looking at the price per cash flow ratio (P/CF) X has increased it’s CF/S. X’s 10 year P/CF has been in the nose bleed section of 70.2 (high) and 32.3 (low) however the three year average gives a better picture. The last 2 year averages is 12.5(high) and 9.5(low)
X’s CF/S is estimated to raise by 13% in 2012 to 4.02 per share this gives me a share price range of 50.19 (high) and 38.13 (low)

D/S, dividends per share is another method to help in determinating what a reasonable price is to buy X.
Looking at the price per dividend ratio (P/D) X has a range in this area as well. X’s 10 year P/D is 2.62 (high) and 5.2 (low) however the three year averages give a different picture. The 3 year average is 2.86 (high) and 5.42 (low)

X’s current dividend is estimated to raise by 10% in 2012 to 1.76 per share this gives me a share price range of 45.61 (high) and 32.49 (low) with a current 3.5% implies that X is trading below its 3 year averages. I believe that X will have an increase in price in 2012.

Now on to how to trade, as I’m looking to purchase shares of X so I would be writing a put at my price estimates in this case I’m looking to write 2 Put Options at $40 strike price on the www.m-x.ca.  I’m looking to sell them in October 2012, 2-Put contracts for the 40 strike price and collect the premium of $.90 /share. I am also a holder of X and I would also sell my current position at 50-52 range. So I’ll write 2 calls at 50 strike price and collect a premium of $ .90 / share in the same month (Oct).

If your wondering on what the return would be? The Put = 8000 /180 = 2.25% at an annual rate of 4.5% where as the Call would be 8600/180 = 2.09% and 4.18% for the year plus dividends which would make it close to 7.5% for the year. The rent collected is $360 for the 6 months plus any dividends.

*note* there is an offer to buy the TMX group for $50 per share.