Some investors have been cautious during the bear market, and have been reluctant to get fully invested in the stock market, and are now probably kicking themselves over missing the strong market rally last week.
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There are many stocks, however, that have sat out the rally, and may provide an opportunity for investors once the economy recovers. These stocks all have various issues that kept them on the sideline last week, and bear further research before jumping in.
Apparently the concept of smart money did not die an ignoble death during the financial crisis, as investors dumped shares of Moody's Corp. (NYSE:MCO) after learning that super investor Warren Buffett of Berkshire Hathaway (NYSE:BRK.A) has reduced his position in the ratings company. Buffett sold about eight million shares, and now owns around 17% of the company. Some suggest that Buffett was not making a fundamental call on the company, but just trying to keep his position under 20%.
Lexmark International Inc (NYSE:LKX) was one of the biggest losers last week, down 18%. The company had the misfortune of reporting earnings that were below analyst estimates, and then lowering its forward outlook, a double whammy for the company. The bottom line miss was huge, with Lexmark International reporting 22 cents versus estimates of 89 cents, and the company put next quarter guidance in a range of 40-50 cents, below the 52 cents expected by the street.
Infinera Corp (NYSE:INFN) also reported earnings, and beat estimates by 1 cent. However, the company lowered its second quarter revenue outlook, and raised its third quarter revenue outlook.
Allegheny Technologies Inc. (NYSE:ATI) manufactures and sells specialty metals to customers globally, and reported a net loss in its most recent quarter. L. Patrick Hassey, the CEO, was not optimistic on the current environment, despite the presence of "greenshoots" in the economy. "While we are seeing signs of stability in some markets like commodity stainless and gains in others like our exotic alloys business, we are realistic in saying that we are not yet seeing signs of significant recovery in our overall business volumes and revenues," said Hassey.
Aaron's, Inc. (NYSE:AAN) is another stock hurt during the market rally by its attempt to navigate the tricky expectations of investors. The company beat earnings estimates in the current quarter but lowered its outlook for the balance of 2009.
This "he said, she said" guidance game is insane, and companies should stop giving guidance, as it only empowers momentum investors, which are the enemy of a rational market. Business is inherently volatile and unpredictable, and "guidance" is a poor attempt to harness that volatility.
The Bottom Line
Despite the strong rally the last week, many stocks have been left behind due mostly to investors selling first, and asking questions later. These stocks may ultimately prove profitable for investors who go against the grain and act contrarian. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)
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