You won't believe what retail traders are buying

Published Wed, Apr 8 201512:25 PM EDT

The small investor, generally speaking, is pretty risk adverse. Bellwethers such as Apple and Exxon Mobil tend to be the names that retail traders, as a group, buy the most when they are bullish the market. Similar to what happened with American Express after it lost the Costco credit card deal earlier this year, they also will seek out value in big brand names when they get hit on negative headlines. But last month, they were going for the gold in a little-known stock thrust into the news after a damning report on its products, widows and orphans be damned. The retail investor was aggressively purchasing shares of Lumber Liquidators after the stock was cut in half on a "60 Minutes" report that the company has unhealthy amounts of formaldehyde in some of its flooring. Buying began the week after the report aired late February and increased during the first two weeks of March, according to trading data from TD Ameritrade's 6 million accounts. "I would say that it matches similar patterns we have seen in other areas, particularly in the oil and gas sector," said JJ Kinahan , chief strategist at TD. "When the retail trader feels that things are overdone, they will come in and buy for a bounce and then get out after a good rally." It has paid off for some of those retail buyers as Lumber Liquidators' shares are up 21 percent off their lows reached early March. Still, they are down by more than a third for those investors that bought the week after the negative report. Wall Street has remained pretty quiet on the company as most analysts are likely afraid to get in front of a stock so vulnerable to headline risk. A Raymond James analyst did upgrade the stock Monday to "outperform" and called for a comeback by almost 20 percent over the next 12 months. Most analysts are waiting to see how the negative reports affect sales. The company already said a week ago that sales in the first quarter were less than Wall Street expected and margins were down on discounting. Read More Huh? Sales of older iPhone 5S surging On the overall market, TD Ameritrade's monthly report on insider sentiment showed the retail crowd is more bullish on the market after sentiment fell to a 2-year low in February. Retail investors also bought shares of Disney , Visa and Apple last month to bet on the bull market.

Traders work on the floor of the New York Stock Exchange.

Brendan McDermid | Reuters

The small investor, generally speaking, is pretty risk adverse.

Bellwethers such as Apple and Exxon Mobil tend to be the names that retail traders, as a group, buy the most when they are bullish the market.

Similar to what happened with American Express after it lost the Costco credit card deal earlier this year, they also will seek out value in big brand names when they get hit on negative headlines.

But last month, they were going for the gold in a little-known stock thrust into the news after a damning report on its products, widows and orphans be damned.