This Market Forgives and Forgets

 | Jan 25, 2013 | 2:04 PM EST
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We used to joke on the trading desk about how quickly lapdog analysts would come out and say, "The weakness is an opportunity to buy." They would pound the table to get people to purchase shares no matter how horrible the earnings transgression was. We used to say "here comes the B.O.," with the obvious implication that a buying opportunity stunk out loud.

But in this market, a market where forgiveness reigns supreme, weakness actually is often a buying opportunity.

Think back a month ago when Schlumberger (SLB) preannounced a weaker quarter because of pricing pressure on North America. We own the stock for Action Alerts PLUS, and when I sat down with co-portfolio manager Stephanie Link to talk about it, she immediately bet me $10 the stock would not only be above the $68 where it fell to immediately but above the $73 mark, where it was when the company preannounced the shortfall.

It traded at $79 today.

Lost that bet.

Accenture (ACN), at one time my favorite consulting company, recently reported earnings and gave an outlook that chilled me. It was simply inconceivable that a company of that consistent caliber could blow up the way it did. I felt so terrific that I had dodged that bullet when the stock flew down to $65 from $71. Today, it took out the level it was at before the hideous shortfall. Is it any wonder, then, that fellow consultant SAP (SAP), which also acknowledged weakness on its conference call, is now back where it was?

This pattern has now become ingrained. Starbucks (SBUX) reports a worrisome number, and Europe is the culprit. Howard Schultz, the terrific CEO, then comes on "Squawk on the Street" and pledges he will fix Europe and says that the turn is at hand. The stock reacts poorly and heads down to $49.

Then what happens? Schultz delivers on his promise, and the stock heads right to $57 today.

Procter & Gamble's (PG) Bob McDonald has a couple of disappointing quarters and then promises that those days are over and that he is going to deliver increased revenue with much lower costs. Very few believe him. Yet he does that just today, and PG soars to $73.

IBM (IBM) tells you that the previous quarter where it got smashed would be a one-time event and that the quarter would have been fine if a couple of big deals close. No one listens to the alibi, and the stock gets poleaxed from $211 to $185.

So what happens when the next quarter is reported? The deals did close, the business got better, and the stock is off to the races, up to $204, but it wouldn't shock me if it, too, soon took out the high it was at before the disappointment.

Many want to fight this tape. Others think that stocks are overvalued because they keep getting revised upward on little news.

To me, what people don't realize is that the environment has just plain gotten better. Think about the guest I had on "Mad Money" last night, Rick Hamada, from Avnet (AVT). When the company reported last, he had very little good to say. That negativism drove the stock down from $33 to about $27 and change when he came on and said that the business was fundamentally sound and that his company, which had been out of the market, came in and was buying stock because it was a terrific opportunity. Sure enough, the company reported yesterday, it was terrific, and yes, the stock went above where it was before the previous shortfall.

The moral? This market forgives, forgets and then goes higher. Which is why most of the weaknesses you see individual stocks are, indeed, buying opportunities.

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