No. of Recommendations: 1
Jim posted:
Until fairly recently the two methods gave almost identical results, but operating earnings have been pretty weak compared to investments&book in the last ~3 years, so my own valuation level is lower than the multiple of book. In the last 3 years, my WMA of real book is up 7.1%/year, but WMA of my own valuation method is up only inflation+ 3.9%/year, so the blend of the two on the graph is up 5.5%/year. As a result, the recent slope of the smooth line in this graph is a bit shallower than what you'd get with a multiple of book alone.
And:
Friday's close is 16% (1.27 standard deviations) above this particular smoothed value line.
So does this approach make sense:
- Friday (7 Aug) close was $521.80 / B.
- If that is 16% overvalued, it implies fair value of ~ $450 / B.
- If inflation is running at 3.5% and real value growth is running at 5.5%, then nominal growth should be 9%.
- At 9% growth $450 fair value should grow to ~ $508 nominal by Jan 2028.
- Today's close is $516.38.
- Would it make sense to sell covered calls 17 Jan 2028 Strike $520 currently bid after hours at $59.50?
- If the stock falls much at some point before then, close the position.
- If there is no obvious time to close early, then if they are out of the money at expiration, let them expire.
- Otherwise roll out and up.
StevnFool
