close icon

Moody’s, a Buffett Darling, Trading in Late Fifth Wave

Moody’s Corp. has been a long-time holding in the Berkshire Hathaway portfolio. It is also the seventh biggest position in it as of the end of March 2020. The company has a strong competitive advantage, it is highly profitable and growing. No wonder Warren Buffett likes it so much.

The stock did decline sharply in the recent COVID-19 selloff, but is back at new all-time highs as of this writing. Currently at $294 a share, it is actually up almost 80% from the March lows. Can that uptrend continue?

From a valuation point of view, Moody’s is extremely overvalued. The company trades at 40 times its 2019 earnings, but has been growing its EPS at just 10% for the past five years. The problem with valuation is that it has no predictive value. An overvalued company can stay that way for a long time.

By the way, Moody’s the company will be just fine. In order to get an idea of what lies ahead for Moody’s stock, we need a different approach. The weekly chart below puts the post-Covid-19 surge into Elliott Wave perspective.

Moody's is trading in late-stage super cycle fifth wave

It turns out the March plunge was wave (4) within the larger impulse pattern which has been in progress for over 20 years. Wave (1) ended in 2007 and was followed by a deep retracement during the 2008-2009 Financial Crisis. Wave (3) was a wonder to behold. It multiplied shareholders’ money by over 18, not counting the dividends.

If this count is correct, Moody’s stock is now in the fifth and final wave of the uptrend that began in 1998. Now, with the Fed’s re-adopted easy money policy, it remains to be seen how far can wave (5) go. However, we think holding an extremely overvalued stock that is due for a major Elliott Wave correction is not worth the risk. The anticipated three-wave decline can erase all of wave (5) and drag Moody’s back down to ~$160 a share. That is 45% less than the current price.

Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!

Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Barry Callebaut Can Drop 25% as Fourth Wave Unfolds

Barry Callebaut AG is one of the largest cocoa processors and chocolate manufacturers in the world. Formed by the 1996 merger of Callebaut and Cacao Barry, the company produces over two million tonnes of cocoa and chocolate per year. Barry Callebaut went public on the SIX Swiss Exchange in 1998 and has been quite rewarding to investors ever since.…

Read More »

Elliott Wave Correction to Drag DraftKings Down 50%

DraftKings, the popular digital sports entertainment and gaming company, went public in April, 2020. It wasn’t a normal IPO, though. The company instead merged with a blank-check company, Diamond Eagle Acquisition Corp., which listed in 2019 at $10 a share. Less than six full months later now, DKNG trades near $57 a share, down from…

Read More »

Alteryx: Can We Trust the Pre-Market Enthusiasm?

Alteryx Inc., a self-service data analytics software provider, saw its shares soar 28% in pre-market trading today. The surge was caused by the better-than-expected Q3 revenue guidance the company issued yesterday. Apparently, the news that AYX was going to make $13-15 million more in quarterly sales than anticipated was enough for investors to boost its…

Read More »

LKQ Shows How An Elliott Wave Cycle Should Look

LKQ Corporation is an auto parts provider, founded in 1998 and headquartered in Chicago, IL. Investors who bought LKQ stock at the IPO price in 2003 and held until 2018 would have multiplied their money by almost 25. On the other hand, those who bought in January 2018 are still under water as the stock…

Read More »

Qualys Stock to Fall Another 40% as Bears Persist

Qualys Inc., founded in 1999 and headquartered in Foster City, CA, provides cloud security and compliance solutions. Given the fast-growing sector the company operates in, it is no surprise that its stock has also been quite hot. At least until recently. Qualys went public at $12 a share in September 2012. Despite a couple of…

Read More »

Electronic Arts Can Lose 50% in Elliott Wave Correction

Electronic Arts hasn’t been able to reach a new all-time high since July 2018, when it climbed to $151.26. However, the stock came close to that last month after the coronavirus panic in March was quickly forgotten. Currently near $127 a share, Electronic Arts holds a rather high valuation at 29 times its expected fiscal…

Read More »

Buffett’s DaVita Stock Looks Like a Bull Trap

Formerly known as DaVita HealthCare Partners Inc., DaVita Inc. provides kidney dialysis services for patients suffering from chronic kidney failure or end stage renal disease. It was founded in 1994 and went public a year later. As of this writing DaVita’s market cap is close to $10.7 billion. The interesting part is that it is…

Read More »

More analyses