Wednesday, November 14, 2012

COW (part 3)

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The Consensus
I started my analysis of COW (iShares Agriculture Exchange Traded Fund) by determining the companies which make up the majority of it, and then I did a Price/Earnings calculation for each, based on consensus earnings as at the end of 2012.  The next step is to calculate the expected price difference between now and the end of the year.  We can calculate the difference between today's prices and the year-end target prices. Using the same weightings we derived for each company in the fund, we can then compute each company's contribution, and thus, a year-end price.

The Price
That said, the target price I calculated for COW by the end of the year is $28.78, a 32% increase from today.  Now, if I only relied on fundamentals, COW would be a buy, although I have to say earnings estimates are being cut during the current reporting season.  Dupont, for one, had to do so.

The Charts
If we also look at the charts for COW, however, we can see that it has approached a point of resistance where it is not totally clear whether the price will continue much higher than that.  Still, the upward trend remains, largely, intact.  While it is no guarantee of future performance, that same upward trend has continued into the new year in each of the last four years.  Personally, I have my doubts given the uncertainty over tax rates in the U.S. after the end of this year.  I can't advise people what equities they should buy, but for myself, I would only be willing to hold COW if it breaks above that line of resistance.

What do others think?  Are you convinced?

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