Just like there comes a time to open a bottle of good wine, there comes a time to sell a good stock. The time to look at taking profits on Treasury Wine Estate (ASX: TWE) may soon be approaching – particularly if its price appreciates soon for no better reason than a falling Australian dollar.
Eighty percent of Treasury's sales volume is in Australia, but 43% of its income is from the United States, so it stands to benefit from our falling currency. It has been more of a capital growth play than a yield stock. Its price is up 24% on the year to date, but its dividend yield is a low 2.2% on a price earnings ratio of 29%, double the average of its food and beverage industry sector.
A market outperforming 3.43% gain on Wednesday pushed it back over the $6 mark. That made it look like long-term holders should start keeping an eye on whether it could return to its 52-week high of $6.47 on May 20. But the closer it gets to that point the less of a "hold" it looks.
Other recent price spikes were $6.18 on March 20 when it had been hovering around $5 just a month earlier; and $5.60 on October 19 last year when it had traded as low as $4.27 mid-August. So there is some volatility there and anything looking like another spike would have to get investors thinking. Some believe the price has a fairly healthy prospective takeover premium in it.
Morningside reckons Treasury is trading about 60% above an intrinsic value of $3.70. Following a previous 8.2% growth in earnings, its consensus forecast for current year earnings for Treasury is a flatline 0%, leading it to join other analysts in recommending a "sell" on the stock.
Foolish takeaway
It might not be quite the time to sell Treasury Wine Estate — maybe our lower currency can see its value mature that little bit closer to the high $6.40s again; but investors hoping to reap some rewards should not leave it so long that it goes off. The further it rises above $6 the more they should think about taking some profits off the table.
If you're looking for a solid investment idea, click here now to get The Motley Fool's special FREE report, "3 Stocks For the Great Dividend Boom". The report lists the names, stock symbols, and full research for our three favourite income ideas, all completely free!
More reading
Motley Fool contributor Andrew Ballard does not own shares in any company mentioned.
