We got an email that may be of interest to all when it comes to stock picking. It deals with the age old question, whether you're in this contest or not- just what makes a stock so popular?(wouldn't we all like to know!) Here's the email and our attempt to answer.
I think this is also supposed to be a learning experience. I'm not sure if you all ever said that. But if it is, could you all perhaps pick a few of the most active and highest returning stocks and explain why so may people bought those particular stocks. Most likely, it would be too late to jump on the band wagon, but it would help us learn tactics, strategies and techniques.
Take LWSN, for example, what would've made someone buy that particular stock on Monday. Was it just a fluke. And the most actives that show up every week like BWI, TOA. Why are they so active? What'd I miss?
Thanks
Well, we don't claim to know all the reasons why a stock is popular. Professionals who have been in the business for years, spend hours and hours trying to research the next big stock. But therein lies the answer--perhaps. So--we're going to look briefly at the stock mentioned in the email: LWSN. LWSN is the ticker for Lawson Software Inc . It's a global provider of enterprise software applications. It's corporate headquarters are listed as Minnedapolis/St. Paul. Minnesota and Stockholm, Sweden. It's competitiors include Oracle,SAP AG and JDA Software Group. (see chart below)
If we look at the news for the stock, we see this from AP on Monday:
Lawson Software Inc. shares jumped to a three-year high after the business software maker forecast fiscal third-quarter revenue above Wall Street expectations.
The St. Paul, Minn.-based company said Monday it expects $190 million to $192 million in sales for the quarter ended Feb. 28, up from its previous outlook of $181 million to $189 million. Lawson also said it is delaying its quarterly filings until April 9 from April 4 as it completes accounting related to its purchase of Intentia International AB.
Excluding charges related to restructuring, the company expects to surpass its earnings forecast of 2 to 3 cents per share. On average, analysts polled by Thomson Financial expect $187.2 million in sales and a profit of 3 cents per share.
Cowen & Co. analyst Peter Goldmacher reiterated his "Outperform" rating on the stock following the announcement, and said shares would get a boost from the news.
However, he said, the company is still working to complete a turnaround. Lawson did not give an update on new license bookings for the quarter, which Goldmacher could encourage pessimism about the quarterly results.
"At this point it is still unclear if the license upside in the quarter was a result of better than expected bookings, lower than expected license revenue deferrals, or faster than expected recognition of licenses from the balance sheet," he said.
Lawson stock rose 84 cents, or 10.5 percent, to $8.87 in afternoon trading on the Nasdaq Stock Market. Shares peaked at $8.92, their highest mark since March 2004. The stock had traded between $5.39 and $8.79 in the past year.
So--to state the obvious, Wall Street liked Lawson because it beat revenue and earnings expectations. The trick, if there is one, is knowing when a company will release it's earnings and "guessing" that the company will beat expectations--to raise the stock price. As we said in an earlier post,"if you bought Lawson on Monday at $8.03 and held/sold on Tuesday with a close of $8.88, the contestant gained 10.59% on the trade. Lawson forecast that its third-quarter earnings will be above guidance."
This is certainly a simplified answer to the question of what makes a stock popular. But--if you can--look for companies with earnings coming out. Keep tabs on the news. It's called "bottom fishing" or looking for a stock that may be down but has a chance to go up. Again, this is NOT recommended for real life investing strategy. This is only recommended for the contest.
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