Buying the Pukes
There’s a trend these days in stocks selling off huge only to rebound in a matter of days if not minutes. It’s the old buy the dips. Better yet, it’s buy the pukes because once the stock throws up it starts to feel better very quickly. It’s as if all the bad stuff gets out of their system and the stock can move forward – onward and upwards. The “weak hands” are out and the believers buy back in.
Take Nike (NKE) for example. The stock sold off hard on worries about a slow down in Europe, only to bounce back and then above where it sold off in a few weeks. And it seems like Nike isn’t getting enough credit for the data aspects of it’s new smart shoes and the Nike FuelBand. Plus, Nike will put data collecting sensors on golf clubs.
And then there’s Brown Shoe Company, (BWS) the global footwear retailer puked into the toilet after reporting a loss and shot down over 10%, only to rebound above where it puked in less than two weeks. As Philip Etienne perfectly stated, buy the puke in BWS. The story seems to be that the company is only going to keep growing and expanding, as it recently purchased the Sam & Libby brand.
Another exmaple is Tibco Software, (TIBX) which sold off hard, over 10%, when it was downgraded by ThinkEquity as said there were “lingering organizational issues at the company and 10% headcount reduction planned in U.S.”. This turned out to be false as the company said there were no reductions planned. The stock is now back to near where it sold off.
Finally, look at the classic always buy the dips or pukes stock everyone must own these days, Apple, (AAPL). After it lowered guidance the stock was slammed, now it’s well above and beyond where it sold off. Look at the canyons in Apple’s stock chart and see how quickly it rebounds. Apple right now is in a downdraft as everyone waits for the iPhone 5 release. Will this again turnout to be a buy the dips case and Apple will soar into the $700 range?
Sometimes it’s painful to go in and clean up the puke, it’s quite smelly, but somebody has to and in the stock market, at least with these stocks above, you’ve been generously rewarded when you buy the pukes.
Nice writeup. I've been noticing this trend a lot recently - seems like solid companies get hit harder than they should on negative news, but bounce back relatively quickly. JPM is a great example of this - they got killed during the London Whale news, dropping from around 44 at the beginning of May to around 31 by the beginning of June. Since the beginning of June, the stock is up ~30% and is nearly at pre-Whale levels.
CHK is another good one to look at as well, or BP before them.
Been doing this for a while now. It works perfectly right now because everything is so rumored based. So once a solid company gets bad mouthed or doesn't meet expectations they end up getting butchered way worse then they should have. then, people forget about it or start hearing good rumors about it and it pops back up. So much value right now comes from rumors as opposed to the fundamentals, it's quite ridiculous.
I might be missing something, but hasn't this phenomenon been happening for many, many years? The phrase "Buy on bad news" is one that doesn't necessarily apply to just this current market, but the market going back a long time.
This strategy would've been GREAT in 08. Buying on pukes makes sense if the market is misunderstanding something. Buying on bad news "just because" is retarded. See GRPN and ZNGA as great examples of this.
There's a reason the saying 'don't try and catch a falling knife' exists.
Saepe non dolores eaque nihil qui. Porro error nostrum maxime.
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