Wrong! Tactics and Strategies: Playing the Earnings-Surprise Game
By James J. Cramer
Sometimes it just depends where the stock is. Wasn't that the lesson that Lucent (LU:NYSE) drove home Thursday? Great quarter. Robust
business. Honest guys. Refused to say that a worldwide recession wouldn't hurt them but at the same time said demand remained strong.
And yet there is some clown out there that has a higher estimate, and suddenly the stock, so given to sprinting from the get-go, gets stalled
in the starting blocks.
When we see stillborn action in high-performance stocks we should first ask ourselves, "where did the stock come from?" In Lucent's case,
no matter that it was a dynamite quarter. This stock was fresh from a slew of upgrades and had just put on a magnificent run. Those bad
old days of $6 handles were far behind. Lots of people had piled in already, looking for this great number. So the stock did nothing.
We had seen this same scenario play out with Schering-Plough (NYSE:SGP - news) . Here, to me, was the class act of the drug blowouts,
hitting on all cylinders. But this stock had hardly been dented by the selloff and hung suspiciously high before the quarter's announcement. It
had no room to move higher.
In both cases I think we will look back and remember that stocks, even great stocks, have to mark some time after big moves -- before or after good news. In other words,
those who think the market is irrational for its failure to reward Lucent simply have no sense of near-term history. Lucent rewarded those who believed before they saw the
good news. Not after. |
