Stock Checkup: Automatic Data Processing, Inc. (ADP)

I brought Automatic Data Processing (ADP) to your attention on July 15th. Since then, an important market development occurred. The Dow Theory confirmation gave us a buying signal on July 23rd. ADP was trading at $35 on the 15th. The price was a little to far from where I would like to acquire the shares for and thus I watch and wait for a better opportunity to buy. The market didn't give me a chance and I watch ADP rose above $37 and is currently trading north of $36. Some important elements developed in ADP charts and I'd like to share that with you.

If you look at the chart below, the red line is the 200-day moving average which I correlate it to a long-term trend. The blue line is the 50-day moving average which I correlate it to a medium-term trend. Two important things I would like to point out.

1.) The slope of the red line appears to be less steep to curving upward signify a change in the long-term trend from down to up.

2.) The blue line crossing red line or "golden cross" signify and change in momentum. Although this pattern happened back in August 2008, it occurred on the back of a downward 200-day moving average. This time around might be a change in direction.

As a result, I will be taking a position in ADP around $36. ADP is considered fair value at dividend yield above 2%, yield is currently at 3.5%. I retain my fair value of $52 and reiterate that it is a bargain below $41. This doesn't mean that I expect ADP to reach $52 in few days or weeks. My investment strategy simply allow me to buy shares of a company when I see that risk are limited.

Art

Print this post