Re: Value stock catalyst.
I think we tend to define catalyst as some key fundamental thing we can see coming for a company. As you say this is very hard to see beforehand. I look at it differently. I would define catalyst more generally, as something that will prove the prevailing Street view wrong.
That would include a key fundamental development we expect that the Street does not or more general things like faulty Street analysis
(in our opinion). Two examples. New Holland was priced by the Street
as if the current tough period would be the same as the last (with huge losses), despite there being fewer competitors, company statements that they were being more careful with inventories, early production cuts, etc. Buying it at $8+ was a no-brainer.
Second, the manufactured housing industry. It is no surprise news that a lot of dealers have been added. What this amounts to is channel stuffing (of unneeded channels) by the manufacturers, which is not a short term problem to correct. I have been publicly bearish on the idea of buying these stocks since CHB was 20 and CAV 8, long before the Street took them out and shot them.
I also think that where you can identify faulty Street analysis you are likely to make larger gains faster than if you are right on some fundamental development. The latter often takes time to emerge in results; the former, when recognized can result in a rapid change in valuation, as with NH, CHB and CAV. |
