For a lesson in picking January Effect stocks, I'm looking at what went wrong with SBLU.
This stock behaved perfectly, in a technical sense, for a January Effect stock for the first two weeks. Then, it blew up on the 17th of January, as a result of bad news. They say their debt is way too big and they need to sell the company, its assets, or do some other reorganization (which sounds like BK).
In picking January Effect stocks, I try to look for things that can go wrong during the next month that might generate bad news. These stocks have low prices for a reason: something has gone wrong in the last year, and there's a risk of something else going wrong in January. So the trick is to avoid those that have the biggest risk of having bad news. SBLU's news is a kind I wasn't looking for.
They announced that they will try to sell their assets, or reorganize, or something, because they are swimming in debt, despite having good products. It was the debt that was mentioned so strongly in the PR. So debt is what I must look at in the future.
Yahoo shows that they have a debt/equity ratio of 23, which is really very high. I hadn't noticed before.
So I think a good rule would be to exclude manufacturing companies with a high debt/equity ratio, for example > 4. |
