FP Fixed
Introduction
This paper relates an analysis of stock price behavior over the period of time from the 21st of October to the 17th of November. The aim of the paper is to trace an effect made on the stock price by the changes in markets.
The markets are affected by a number of economic and non-economic factors that sometimes cannot be predicted. Among the most popular factors influencing markets are: market sentiment, growth expectations, valuation, momentum, and central bank activity. Actually, any economic factor or company news may influence stock price.
A portfolio of five stocks was analyzed. The following stock s were chosen for analysis: Boeing, ConocoPhilips, Costco Wholesale, Caterpillar, and Intel. The prices for stocks were compared to each other and to a chosen benchmark. Dow Jones Industrial Average was used as the benchmark.
Analysis of Stock Prices of Boeing
Market analysts recommend strong buy policy regarding Boeing stocks. The most influential event was selling new revolutionary BA 787 Dreamliner. Shares of Boeing did not fluctuate significantly during past several years. Analysts link share price with achievement of production targets set by the company. The price for Boeing stocks is expected to grow up to the level of $90 per share by the end of this year (Boing, 2012).
Taking into account all said above, a conclusion can be made that the market does not quickly respond to the news. The news about the final hurdle first appeared at the end of August, 2012. Further growth of Boeing stocks is linked to production of new airplanes. The company set an ambitious goal to manufacture ten airplanes per month. Thus, the growth is expected to reach $6 per month the next year. Traditionally, aerospace industry is influenced by innovative technologies. Also, Boeing stock price is affected by market expectations (Boeing, 2012).
Analysis of Stock Prices of ConocoPhilips
ConocoPhilips business is sensitive to prices for commodities. Energy market is traditionally influenced by government policy. Also, energy industry derives revenues from selling energy to manufacturing, extraction, distribution of energy and refining.
The most discussed issue in energy sector is that US intends to open oil wells. This event will significantly change energy market making the US the largest oil producer. The demand for oil is relatively stable and growing with new markets emergence (ConocoPhilips, 2012).
ConocoPhilips share price is relatively stable; it fluctuated less than other stocks prices. Now it is a good buying opportunity for investors. The company finished its refining division and now focuses on production of oil and natural gas. During the market sell-off the company shares trade approximately 9 times earnings yielding 5%. S&P 500 Index trades around 14 times earnings yielding 2% making ConocoPhilips stock worth buying (ConocoPhilips, 2012).
Analysis of Stock Prices of Costco
The stock prices of the wholesale retailer Costco are the most expensive if compared to other stocks in the portfolio. The stock lost its market value during the whole period that was examined. It could be conditioned by seasonal decline in market value. The same situation can be observed in other cases. The catalysts for relatively stable trade are low margin and inflation-resistant business model. The company heavily relies on its large wholesale warehouses generating the large part of revenue through fees obtained from members. Also, Costco’s own brand contributes 20% to the earnings. As there were no any significant news influencing the company activity, the stock prices remained relatively stable. Costco’s stock price was subjected to fluctuations less than other stocks chosen for analysis (Costco, 2012).
Analysis of Stock Prices of Caterpillar
As well as other stocks, Caterpillar stock was affected by macroeconomic problems the majority of global markets had. The success of the company is conditioned by diversified products. The business depends on demand for natural resources and demand for buildings and construction. The demand for buildings is shakier than the demand for natural resources. Diversified products offer an opportunity to shift from one product category to another to maximize revenues. It helps the business remain stable that is reflected on the stock price (Caterpillar, 2012).
Caterpillar business relies mostly on emerging markets, such as China. However, sales in North America region, the market which is more saturated, grow as well (Caterpillar, 2012).
Analysis of Stock Prices of Intel
Shares of Intel experienced the most significant drop if compared to other shares. The slowdown was caused by expected sluggish demand for products of the company. Intel lowered revenue outlook making negative impact on stock prices.
Technology sector of semiconductors industry is currently experiencing fast growth. It also characterized by high level of competition and threat of substitute products. In addition, Intel business is affected by many other factors, including weak demand in emerging markets, and seasonal changes in inventory (Intel, 2012).
Undoubtedly, the most influential factor for Intel stock price was weak demand for its products because producers of popular smartphones use platforms offered by Intel rivals (Arm Holdings and Qualcomm). Besides, Microsoft and Apple offered their products (Surface Tablet and iPad respectively) disrupting Intel traditional revenue flux from desktops and laptops. As the stocks of Intel remain stagnant for several years, the suggestion is that Intel is probably losing its market share in consumer business. The tendency is reflected in stock price fluctuations (Intel, 2012).
Analysis of Closing Share Prices for the Period
It was difficult to discuss which market was successful because the market value of all stocks dropped. As the decrease in price of Boeing and Costco Wholesale stocks is comparatively low, they can be considered the most successful. The stocks of ConocoPhilips, Caterpillar, and Intel lost 4.31, 3.26, and 8.38 respectively. Thus, the stocks of Intel are the least profitable. Analysis of the stock prices is represented in the Table 1 below.
Table 1 Closing Stock Prices (21st October, 2012 – 17th November, 2012)
Company/$
Boeing, BA
ConocoPhilips (COP)
Costco Wholesale (COST)
Caterpillar (CAT)
Intel (INTC)
Dow Jones Industrial Average
Table 2 Closing Stock Prices Motion over Chosen Period
Company/$
1st Week,
%
2nd Week,
%
3d Week,
%
Boeing, BA
ConocoPhilips (COP)
Costco Wholesale (COST)
Caterpillar (CAT)
Intel (INTC)
Dow Jones Industrial Average
Dow Jones Industrial Average was chosen as a benchmark. In whole, the motion of prices of the stocks chosen for analysis is consistent with chosen index. However, the stock prices of ConocoPhilips, Caterpillar and Intel precisely reflect the motion of the index each week. The overall downturn trend can be explained by elections in the US. Dow Jones Index dropped 5% according to analysts’ comments as well as the five stocks analyzed (Dow Jones Industry Average, 2012).
Computation of Return on Investment Portfolio
It is necessary to calculate the return on each stock and return on portfolio to trace the motion of stock prices. Return on portfolio is an effective tool to reveal which stocks are profitable and which stocks yield a loss.
Return of portfolio can be calculated using the following formula:
R = (W1 x R1) + (W2 x R2) + (W3 x R3) + ..(Wn x Rn),
where W - the weightings in % of assets, R - return for the respective assets.
In this case return on portfolio is negative and it made up -192.08%.
Return on stocks formula is as follows:
R = (CP-PP)/PP, where R – return on stocks, CP – current price, PP – price paid for stocks.
The results of calculation of return on portfolio are shown in the Table 3 below.
Table 3 Return on Portfolio
Investment
MV, $
(t0)
MV, $
(t1)
Weight,
%
R, %
Weighted return, % (t1)
Boeing, BA
ConocoPhilips (COP)
Costco Wholesale (COST)
Caterpillar (CAT)
Intel (INTC)
All of the options chosen lost their market value. It does not mean that the stocks were of bad quality. It means that probably now is the right time to buy stocks of good quality before their price increase. Usually, prices for stocks increase in spring during seasonal rise in business activity. Choice of stocks to buy depends on the objectives of the investment and on investment strategy. Currently, chosen portfolio of stocks does not make any profit. However, short-term and long-term returns may vary significantly. It is important to trace the return on portfolio every week to be aware of the current trends.
In this case the active investment strategy was used. Active investment strategy means buying stocks at low cost and selling in the highs. This is a long-term strategy and may not be beneficial for investors preferring short-term investments.
References
Boeing Corporation. (2012). Boeing Corp. Bloomberg. Retrieved from
http://www.bloomberg.com/quote/BA:US
Caterpillar Inc. (2012). Caterpillar Inc. Bloomberg. Retrieved from
http://www.bloomberg.com/quote/CAT:US
ConocoPhilips. (2012). ConocoPhilips. Bloomberg. Retrieved from
http://www.bloomberg.com/quote/COP:US
Costco Wholesale Corporation. (2012). Costco Wholesale Corporation. Bloomberg. Retrieved from http://www.bloomberg.com/quote/COST:US
Dow Jones Industrial Average. (2012). Dow Jones Industrial Average. Bloomberg. Retrieved from http://www.google.com/finance?cid=983582
Intel Corporation. (2012). Intel Corp. Bloomberg. Retrieved from
http://www.bloomberg.com/quote/INTC:US
