Investment Guide to NLO 10-Year Targets

Recently we have been adding 10-Year Targets for estimating the future undervalued, overvalued, and fair valued levels of specific stocks.

To help clarify the reasons why we have done this, we are providing an example from a Value Line Investment Survey dated December 4, 1998 to capture data from within the two stock market crashes of 1999 to 2001 (2003) and 2007 to 2009.

The sample stock that we have used is Bank of Hawaii (BOH) which was known as Pacific Century Financial at the time.  In the Bank of Hawaii (BOH) example that we have provided from 1998, we have run exactly the same numbers as in the 10-Year Targets for the stock from 2018 to 2029.

Overview: 1998 to 2018

For the Bank of Hawaii, based on the December 4, 1998 and priced at $22.00, we have the following targets:

• $27.03 (overvalued)
• $21.08 (fair value)
• $15.81 (undervalued)

The accompanying stock chart from 1998 to 2018 indicates the estimated valuation levels, and highlights the 2005-2010 & 2018 periods.

Observations

1998-2000

The period from December 1998 to October 2000 saw the Bank of Hawaii decline from $22 to $11.25.  The undervalued level was indicated to be $15.81, suggesting that buying BOH at or below that level was ideal.

2001-2003

In the December 4, 1998 Value Line Investment Survey, the estimate for 2001-2003 was an upside target of $40 and a downside target of $30.

Our target price for the same 2001-2003 period was as follows:

As can be seen in the table above, the overvalued high level was $40.64 and the undervalued low level was $23.77.  The chart below shows the change in the price of BOH from 1998 to the end of 2003.

As noted in the price chart, BOH achieved a closing price of $42.29, or thereabouts.  This is instructive considering that the bear market from early 1999 to mid-2001 was not anticipated at all and resulted in BOH falling slightly more than –50%.

Our estimated range of the stock price was fairly accurate with a more accurate expected low in the price as well as achieving the considerable upside target that followed.

2000-2007

At the low in 2000, the overvalued price was $31.82, an amount that was nearly double the $15.81 undervalued level of December 1998.  As seen in the inset of the chart (above), by the time 2005 came around, the overvalued level was $47.85.

Holding BOH beyond that price was likely to result in subpar returns (with the exception of the crash up to $70 in September 2008).  For the foreseeable future, BOH would be considered overvalued until at least the end of 2006.

2007-2009

By 2007, it was clear that the housing crisis was going to adversely affect banks.  As BOH was already trading close to the overvalued price that was estimated in December 1998, there should have been little motivation to buy the stock.

Additionally, investors should have been focused on the next time that BOH would approach the undervalued level at $32.95 by 2007.  However, by 2009, the undervalued level had increased while BOH continued to decline in price.  The question we asked at this point, was BOH a good investment at $32.95 or $38.78?

On January 12, 2009, when BOH was trading at $37.76, we became advocates for the stock and its fundamental attributes.

2018

Again, using the estimated values based on the Value Line Investment Survey from December 4, 1998, the estimated targets for BOH in 2018 were:

• $138.18 (overvalued)
• $107.76 (fair value)
• $80.82 (undervalued)

As of October 25, 2018, BOH sits at $76.74.  Because the valuation components have changed since 1998, we cannot say that BOH is currently undervalued.  However, the valuation levels that have been updated on our site provide reasonable targets for potential investment consideration.

The growing list of stocks that we have generated for the 10-year targets (2019 to 2029) can be found at the following link.  Requests are accepted and may be  furnished but only as time permits.