With the sharp rise in price this morning DE offers less yield, But

“Davidson” submits:

With the sharp rise in price this morning DE offers less yield. The combination is still attractive when one looks at the long-term. It is management’s focus on corporate ‘lean’ culture which provides assurance that the long-term performance should continue.


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I look at corp results in the context of the global context. Currently lower levels of inflation and stupidly high US$, still stupidly low 10yr Treas rates will eventually give way to higher inflation, 35%+ lower US$ and 10yr Treas rates closer to 5%.


Net/net, next 5yrs should see improving business environment for DE with investors eventually becoming overly optimistic. Run a trend line through DE’s peak levels over this chart and you get to a number which will startle you but quite likely as the general climate becomes more optimistic. I will let you do the calculation, but 5yrs out it is in the range calculated by beginning with my trend line price today $90shr, compounding it forward at 10.8% for 5yrs and then multiplying by a factor of 2 to adjust price to a market which is overly optimistic.


For companies which are consistently well run, a dividend yield model works as well. Some use Pr/BV or Pr/Sales which would come to 5x or 2x as high points respectively from current relative levels of 3.5 and 0.9.


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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.