Chart of the Day: Coming in Under PAR

by Dan November 13, 2014 12:15 pm • Chart of the Day• Commentary

Traders fixate on round numbers and there is none rounder than Par, or 100.  Its been a long held market belief that if a stock gets to $90, it is certainly destined for Par.  The one example that will be etched in my mind for decades will be Apple (AAPL) in 2012, and then again this year:

AAPl 5yr chart from Bloomberg
AAPl 5yr chart from Bloomberg

AAPL got there in spite of the weight of its $600 billion plus market cap and then again after a 45% peak to trough decline into what now appears to be a runnaway breakout with lots of talk about heading to $1 trillion in market cap.  I think its important to remember that for every 1%  higher in the near term, the stock gains $6.5ish billion in market cap, or about 3% of its $210 billion in expected sales this year.   Not taking a view here but it’s important to note that the stock declined in 2012/2013 after overly bullish sentiment at a time when the law of large numbers started to do a number on growth rates. It appears that the company is poised for double digit earnings and sales growth in the current fiscal year, so if they can hit those estimates on new product cycles then buying because it is cheap will remain the path of least resistance.

So who are the other cult stocks destined for Par?

American Express (AXP):

AXP 5yr chart from Bloomberg
AXP 5yr chart from Bloomberg

Disney (DIS):

DIS 5yr chart from Bloomberg
DIS 5yr chart from Bloomberg

Home Depot (HD):

HD 5 yr chart from Bloomberg
HD 5 yr chart from Bloomberg

Nike (NKE):

NKE 5yr chart from Bloomberg
NKE 5yr chart from Bloomberg

Ovbiously, I don’t have a crystal ball, but my money would be one all of the above hitting $100 sooner than later, and then you guess is as good as mine from there.  Put it this way, why go to the prom if you don’t intend to kiss your date?  But finally it is important to note that in all of the examples above, the stocks have dramatically outperformed the S&P500 which is up about 100% since the 2010 lows, vs these stocks that for the most part are about 200% during the same time period. The ascent is getting a tad steep to say the least on a relative and absolute basis.