Buy AMZN on a Dip; EBAY Could Pop

One concept that so many traders and investors struggle with is remembering what really matters. The ultimate arbiter of success vs. failure is whether you make more money, or lose the money you have. That's it. Nothing else matters. Seems easy enough, but there are many enticing routes that lead you down the wrong path. One of the more tortuous paths that traders follow is the focus on going for the cheap stock. Lots of folks focus on buying cheap stocks. After all, we all like a good bargain, right? Why buy a stock with a 305 P/E when you can buy one in the same sector with a P/E of 14? Buy low and sell high, right? The problem is that no one has ever made a dime on the P/E of a stock. Not one dime. Now, this may seem like blasphemy and ridiculousness to you value investors. You like to buy 'em while they're cheap, before the market catches on to your little gem. Well, here's some tough love. The market has already caught onto your little gem and doesn't think much of it. The collective wisdom of the crowd (the marketplace of buyers, sellers and sideline sitters) knows more than you or anyone else does. And the P/E of the stock is a reflection of the opinion of the crowd. If the P/E of the stock is low, it's because the crowd doesn't find much value in the company. And if the P/E of the stock is high, it's because there is so much demand for the stock that investors will pay more for the privilege of owning it. Warren Buffet cares about the earnings of a company that he is considering buying. He's buying the cash flow, the assets and liabilities, etc. But you aren't buying the company. You aren't even buying paper. There was a time when you could physically own a certificate granting you a certain number of shares. Now, you are buying numbers on a computer monitor. The only thing that truly matters is whether you can sell a stock at a higher price than you bought it for. Things like P/E are fine places to start, as long as you realize that it is only a starting place. You should be focusing more on the trend of the price. Newton's Law of Inertia essentially states that an object in motion remains in motion unless an external force is applied to it. Put another way, you should find a stock trending higher and then ride it until it bucks you off. If you can do that, you'll make money. If you aren't riding the trend, then you are focusing on things other than simply making money. In my opening paragraph, I referred to an expensive stock with a P/E of 305. That stock is Amazon . The price is crazy expensive, but it has been a money maker for investors for nearly two decades. This weekly chart shows an uptrend that has been a bit damaged, but still works. The stock doubled in price in 2015 before correcting in January. But that test of the 40-week moving average turned out to be a great buying opportunity. We continue to see the stock moving higher in a series of higher highs and lows in the same slope as the previous uptrend. Earnings are due to be reported on July 28. If the stock sells off, I'd be a buyer on any dip. AMZN has always been expensive. Money makers tend to be like that. The cheap stock I referred to in my opening section is eBay . Like Amazon, it sells stuff. The P/E is 14 and the growth rate is basically flat. But hey, the P/E is 14, right? Holding on to this cheap stock for the past few years has been a waste of money because the price has been basically flat. But while it hasn't paid to own EBAY, this stagnancy might be about to change. Notice how the stock has broken back above the 40-week (200-day) moving average. Over the past several months, the stock has been in a narrowing price range. That changed last week. The company reports earnings on Wednesday. If they are upbeat, then we could see a continuation of this volatility pop. But if not, then the stock is back in jail and I sure wouldn't want to put in a bid. Here are a couple of stocks that have great fundamentals and promising price action. U.S. Concrete is cheap. The P/E ratio is 10 and annual earnings growth rate is an impressive 126%. So, fundamentally, the stock works. Technically, it looks strong, too. This weekly chart shows a series of higher lows along the 40-week moving average. I've also included a Williams Accumulation/Distribution indicator on the volume window. This indicator reflects the location of the weekly close in relation to the price range for the week. You can see that the A/D line has been printing higher highs and lows in sync with the price. So, this trend is intact. Earnings are due to be reported on Aug. 4. Continental Building Products reports earnings in a couple of weeks. The company's P/E is 22, but its growth rate is 57%. That makes it pretty attractive on a fundamental basis. Technically, this chart shows a lot of promise. On Friday, the stock ramped nearly 4% on twice average volume. But it's still below resistance of $24. I'd suggest waiting for a breakout above $24 before buying. And by the looks of this chart, this is likely to happen prior to their earnings report. Be careful out there.

Buy AMZN on a Dip; EBAY Could Pop

Plus charts of two cheap stocks.

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