The good action in this stock after it delivered bad news makes JJC want to buy.
TheStreet.com - Wrong!
Schwabing the Decks
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The good action in this stock after it delivered bad news makes JJC want to buy.
By James J. Cramer
Yesterday Schwab (; (NYSE: SCH - news) announced that things had gotten tough. Real tough. And the stock dropped for a few minutes and then rallied right back.
It is action like that that keeps making me feel bullish even as I know that the fundamentals are deteriorating. So, let me tell you how you how I think about things like Schwab, both as a trader and an investor. First, the stipulations. Schwab is an incredibly well-run institution. I keep my mutual fund portfolio of 50 funds at www.schwab.com and I love it for its ease of use and security.
Second, Schwab is levered to both trading and asset-gathering. It has good revenue streams from both.
Third, it is a big company, and can't be manipulated, so its stock is "true" -- meaning that I think it correctly reflects the prospects and strengths of the business. So, yesterday, when it reported disappointing trading numbers I thought it would get hit hard. The double-digit decline month-over-month was shocking. But the stock took a glancing blow, never came near the canvas and rallied right back to even, in a miserable tape.
To me, that indicates portfolio managers now think that Schwab has reached some sort of bottom based on the possibilities of things getting better out six months. It says that the Fed will ease sooner rather than later. It says that other companies that have competed with Schwab may be less aggressive going forward, allowing margins to expand. It even suggests that capacity might be coming out of the business in the next few months, making Schwab a buy.
Understand this: Schwab says those things to me loud and clear. I don't say that stock doesn't know what it is doing. And I don't say, "What a bunch of stupid buyers." I say, "I am humbled when a company speaks the truth about how tough things are and the stock doesn't go down." What do I do with this information? If I were short Schwab, I would cover. This was bad news that did not cause the stock to go lower. If I owned no Schwab and was willing to suffer through the potential disappointment of the Fed not easing in December, I would buy some today off the weakness in the big money-center banks.
I would not buy my full position because of the possibility that December gets even worse and the Fed plays hard to get. But, again people, understand, when stocks don't go down on distinctly bad news, you are much closer to a bottom than a top -- and with a great franchise like Schwab, that's an opportunity.
Of course, I am retiring and I won't be buying anything. I don't want to be conflicted any more, no matter how much I disclose. That, however, doesn't mean I can't tell you what I would do if I were still here, which is buy Schwab. Today. Into the weakness. And forget about it for a couple of months, unless it dropped to 25, when I would buy more. |
