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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (22328)	10/24/2005 11:57:16 AM
From: bruwin	Read Replies (1) \| Respond to of 78594

Interesting comments. I’d like to make the following observation ... In my experience, a stock’s price movement over the medium to longer term (say 3 to 12 months), is largely driven by the QUALITY of its Fundamentals. As Value Investors, it’s a case of recognizing those signs of QUALITY within a company’s financial statements. If one is alerted by ‘bad news’, I would personally suggest one determines whether the nature of that news will adversely affect those important QUALITY criteria. A case in point was PDX. This, in my opinion, is a good company whose stock price plunged about 24%, virtually overnight, from about $76 to $58 at the end of Sept. ’04. In the last 12 months it’s come back to $77 a share ... a 48% rise in price ! The so-called ‘bad news’ was a statement that PDX cut its 3rd. & 4th. Quarter earnings forecasts by about 6% due to its shift from commercial to government payors. Its $3.90 to $3.94 a share earnings would also be below the $4.09 estimate by Analysts from Thomson First Call. As a result several Analysts downgraded the stock. Yet, in the same breath, PDX announced a share buy back of $50 million ! So here we have a company penalised in the Marketplace by a 24% fall in its share price because of a possible 6% fall in EPS, notwithstanding the fact that $50 million worth of shares would be removed from circulation ! It shows, in my opinion, the disproportionate influence that ‘Analysts’ can have on the Market, as well as the true nature of the bad news that they sometimes disseminate. Unfortunately, in my opinion, far too many investors (not you Paul !) tend to base their investment decisions on what their favourite Analyst has got to say, and not on a sensible analysis of a company’s fundamentals. The collective number of these investors can adversely affect a stock's price for no good reason. To quote my good friend, Dr. Karl Posel, "Realise that the market price of a share can move in an illogical manner. Have the confidence of your calculations to make the most of such a situation, once again realizing that logic must, and will, ultimately return to the market."