Make Sure All the Air Is Out of the Balloon

by
If a company has been consistently reporting bad news and its stock has been in decline, a risky proposition would be to buy the shares in a recession. After all, who knows whether the worst is over and the stock has bottomed out? In short, the best advice might be to avoid a stock until the stream of bad news appears to have ended, or the market has turned enough to let you have a risk cushion. But, how can one tell if the worst is over? It's not always easy and there are never any guarantees, but you should generally look for the following hints:
- Press releases or earnings calls indicate that management has become more upbeat. This is subjective, however, so you still have more homework to do if this occurs.
- The company or the sell side starts raising earnings estimates.
New research coverage has been initiated. This is sometimes a positive sign that future growth or expansion can occur. However, if the company cannot round up the funds to support this section, this could be a negative for the company too.
- A company books large one-time charges in its fourth quarter as a means of lumping all the bad financial news into one time period and then painting a favorable picture for the upcoming year.
Source: http://www.investopedia.com/articles/stocks/08/recession-tips.asp

More by Glenn Curtis

Related Tips