Stocks to Avoid

If you’re a trader, you have no business owning stocks into earnings. Remember who you are, a vagrant OTB guy betting on the horses. You are not known for thinking through your investment ideas. Who are you kidding?

But if you insist on owning stocks through earnings, there are some you must avoid.

First off, get yourself a Briefing.com subscription so that you can utilize its search function to do research. When researching your holdings, look through the earnings notes for the past 2 years to ascertain their respective track records with regards to meeting expectations. By no means should you hold a name into earnings that missed last quarter. Don’t be tricked into believing that if XYZ warned last quarter, they must’ve lowered expectations to a level where they can easily beat them.

WRONG.

A loser is a loser is a loser.

Look at the gross margins and inventory levels. If margins are eroding and the company’s inventory levels are expanding, that can be an early warning sign of end user demand weakness. You want to avoid those names.

Granted, if a company missed earnings the previous quarter then smashes them the next, more often than not the share price will explode on the upside surprise, like EXPR. But for every EXPR there are 5 BODY’s.

If your company is losing money and in the midst of a turn around, the earnings may not affect the share price. Speculative IP and biotech stocks do not pop and drop on earnings. They are event driven stocks, beholden to courtrooms and FDA hearings.

In summary, if you’re not in a stock for its fundamentals, you have no business owning it through earnings. Sell it and go buy yourself a week’s worth of bath salts, so you can sniff it all up and go on a zombie face eating binge.

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