Question

For the company - Stryker Corporation, answer the following questions.

1. For you to decide if Stryker stock is a good buy or sell, you must forecast several key variables, including the stock price.
   1. Use historical prices (5 years of monthly data recommended) and forecast the stock price for the next year. Use regression analysis, and/or moving average, etc. to create your forecast.
   2. Create a graph from the historical data and show your forecast on the same graph. You can add a trend line to the graph to help you with a forecast. Include the graph.
   3. You need to say specifically what the forecasted value of the stock price is.  
   4. You must address the question, “Is this forecast reasonable?” Must you amend your analysis to get a more reasonable forecast?

Answer 1

(i): The 5 year historical stock price for Stryker is shown below. It is for the period May 2014 to May 2019.

Time (in months)	Close
1	83.2
2	84.32
3	79.77
4	83.31
5	80.75
6	87.53
7	92.91
8	94.33
9	91.05
10	94.75
55	175.46
56	156.75
57	177.57
58	188.51
59	197.52
60	188.91

Doing a moving 4 month moving average I get the following:

Time (in months)	Close	4 month moving total	4 month moving average	Moving average forecast
1	83.2
2	84.32
3	79.77
4	83.31	330.60	82.65
5	80.75	328.15	82.04	82.65
6	87.53	331.36	82.84	82.04
7	92.91	344.50	86.13	82.84
8	94.33	355.52	88.88	86.13
9	91.05	365.82	91.46	88.88
10	94.75	373.04	93.26	91.46
55	175.46	684.79	171.20	168.14
56	156.75	672.11	168.03	171.20
57	177.57	672.00	168.00	168.03
58	188.51	698.29	174.57	168.00
59	197.52	720.35	180.09	174.57
60	188.91	752.51	188.13	180.09
61				188.13

Thus forecast for next year is $188.13

(ii): The graph is shown below. The x axis shows the months and the y axis shows the prices.

(iii) The forecasted value of the stock price is $188.

(iv) Yes, the forecast is reasonable. The 4 month moving average forecast gives us a stock price of $188 for next year and as we can see from the graph the stock price of Stryker clearly shows an upward trend for the last 5 years and hence the stock price can be reasonably be assumed to increase next year as well. The price of $188 factors a reasonable increase and hence the forecast is reasonable as well.