Automatic Data Processing, Inc. (ADP) is currently at a good buying point, and the wait for a great entry in this fundamentally strong stock is over.
ADP has been in a long-term rising channel since 2009, with occasional drops of 15-20% followed by rallies back to the top of the channel. Those rallies, from similar prior technical buy points, have seen the price move up about 25%…or more if held for a longer period.
The only major break of the rising trend was the quick COVID-related selloff in 2020 when nearly all stocks saw panic selling. At that time, the stock dropped below it’s channel.
ADP is currently at the bottom of its long-term rising channel, having fallen 20% from its December high of $274.92. A short-term trade with a reward:risk of 20% or more can be achieved by limiting downside risk to about 6% or less.
The price target for a trade lasting 2-6 months is $275 to $290, which is 22% to 30% above the current price of around $225. Holding the stock for the long-term is also a viable option, as there’s strong evidence to support it:
- ADP has a long track record of growth, with an average 14.2% increase in yearly earnings per share (EPS) over the last five years and an expected 14.6% yearly EPS growth over the next five years.
- The company has a consistent history of dividend increases, with 48 consecutive years of dividend growth and a current yield of 2.2%. The dividend amount has increased by 14.7% per year over the last five years.
- ADP has outperformed the S&P 500 over the last decade, with an annualized return of 18.2% compared to the S&P 500’s return of 12.5%. Over the last two decades, ADP returns have more than doubled those of the SPDR S&P 500 ETF Trust.
ADP is a long-term steady performer, consistently raising its dividend, outpacing S&P 500 returns, and currently at an attractive buy point.
The company offers a wide range of human resources solutions, including payroll, retirement, and insurance services, to both small and large businesses.
Over the last couple of months, this stock fell slightly more than the ideal amount for the Trend Channel Swing Trading Strategy (at is got very close to the prior swing low), but given its long-term track record, it is still a stock worth considering. I am looking at this stock mainly as a long-term hold in my investment account as opposed to a swing trade, but it could be used for that as well.
Also see: AMGN Near Buy Point with Strong Fundamentals and Rising Dividend
Note: when I am looking at short-term swing trades, I don’t concern myself with fundamentals, like those discussed in this article. When I am passive investing, I just invest in index ETFs. If am buying individual stocks as a longer-term investment (I haven’t discussed this on this site), I do look at some fundamentals as well as technicals for an entry point.
By Cory Mitchell, CMT
Interested in learning how to swing trade stocks? Check out the Complete Method Stock Swing Trading Course.
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Disclaimer: no position yet, but may add one this week.
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