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Strategies & Market Trends : Stock Attack -- A Complete Analysis
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To: freeus who wrote (2711)7/18/1997 7:56:00 PM
From: Robert Graham   of 42787
 
What do people think about buying on split news and selling a few weeks after if the company is not one you want to keep long?

Risky but can be very profitable, particularily when a bellweather like MSFT or INTC splits. The indistry leader of a good, strong industry can also be very profitable. But there are many people playing on the stock split nowadays. So there is much more downside risk. That is why I advise using options as a hedge to enter stocks for the play on the split. However, if you are not careful, the price of the option can be expensive. Since splits occur on a very good runup of a stock, the stock tends to be pricey too and also somewhat overvalued and may have weakening technicals. This is definitely a very short term play and also a risky play without a hedge.

I also would recommend choosing split plays that have good recent fundamental news to go along with the split announcement like the following: an earnings surprise, an announcement of an increase in the dividend or a special dividen declared, record breaking profits and profit growth, and so forth. Also, it helps if the upward momentum of the stock is still strong. Analyst upgrades following the earnings surprise and split annoouncement would definitely help here too. Do not get caught behind an earnings announcement since you add significant risk holding a stock through the earnings announcement.

Just my opinion.

Bob Graham
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