Written and copyright © 2009-2013 by Thomas N. Bulkowski. All rights reserved.
Here are three tips to make your shopping for stocks a more delightful experience.
The flower is a bearded iris from my back yard. I show it just to add some color to the text.
Stock Picking Tip #1: Do your homework!
When I need some celery or something simple like that, I walk 3 miles round trip to the grocery store. Along the way, I have watched CiCi's pizza open a shop in a nearly vacant strip mall.
I don't recall every seeing any customers visiting the shop, but its neon sign still glowed.
Until one day it didn't.
A few months later, Mario's pizza opened in
the exact same location. If a pizza shop couldn't make it there, what makes them think another pizza joint would prosper? I know the small business administration frowns upon such
things, and that is something you discover when you write a business plan for a new company.
Simple exercises such as scanning the parking lot to see how many cars are parked in front of businesses can be invaluable intelligence. Better yet is customer after customer exiting
the store with arm loads of shopping bags full of goodies. Are people just visiting the shop or are they actually spending?
When I speak to clerks, I always ask them how's business.
If they are happy,
that tells me something, regardless of their answer. I remember talking with a Walmart greeter, the people that greet you at the front door, and mentioned benefits. Her cheery disposition
changed in an instant to a deep scowl. That spoke volumes.
So, the first tip is Do your homework. Of course, when you talk about Cisco routers, it is more difficult to do your homework than it is for a retailer like Home Depot
or Hot Topic.
Stock Picking Tip #2: Check the competition.
Late last year, I became interested in chemical companies. They were dirt cheap and I knew they would take time to recover in a weak economy, but I thought I could pick up some
companies at a good value. Then I heard that Lyondell might go under.
Lyondell is a chemical company that was purchased by Basell to form a new company called LyondellBasell in 2007.
The news of a possible bankruptcy brought an end to my shopping for chemical companies. In fact, LyondellBasell declared chapter 11 bankruptcy on January 6, 2009, according
to their website. At year end 2006, Lyondell had revenues of over $22 billion. If they could not survive in this economy, then what were the chances of another chemical company prospering?
Checking the competition mostly applies to news announcements like the one Lyondell made. Since the company was private, I ceased tracking it, but my antennae went up when I heard the name.
Retailers are the same way. If their same store sales are down for one chain, many other chains might be suffering, too. Obviously, a company with
rising comparable store sales (those open for at least a year) can mean a good play.
Stock Picking Tip #3: Do not buy a stock within 3 weeks of an earnings announcement.
On my buy checklist, I have a line that asks when is the next earnings announcement? I always try to find out. Yahoo!finance does a decent job of telling the exact date but sometimes they
are wrong. [Go to finance.yahoo.com and click on the Investing tab. When the new screen appears, click on Earnings under Today's Events. You can enter a symbol and it will show the
expected announcement date]. If that doesn't work, then just add 3 months to the last earnings announcement.
Why avoid buying three weeks before an earnings announcement? Because the announcement could take the stock down in a dead-cat bounce chart pattern. That is when
the stock drops by 15% to 70% or more in one session. They are great if you are short the stock but they really hurt your portfolio if you own (long) the stock.
-- Thomas Bulkowski
Written and copyright © 2009-2013 by Thomas N. Bulkowski. All rights reserved. An idea is not responsible for the people who believe in it.