From now on do we just follow the price target boosts?
Wall Street is a very curious place. During earnings season Wall Street sows tremendous confusion both on its conference calls and its chatter. The media doesn't really get it and takes its cue from a combination of the instant commentary about the call -- kind of like a post-game analysis -- as well as the initial direction of the stock regardless of whether the stock's trajectory is correct. The media doesn't interpret, it just reports the instant analysis and both are usually wrong.
So what do you do? How can you discern whether something is good or not?
First, it is important to have conviction. If you read or listen to the conference call and you like what you hear versus your own expectations than that should be enough. If you don't bother to read the conference call, then don't bother to own individual stocks as the call is set up for you and the analysts.
Second, you need to see the next day's more considered view. This is the one that takes in a more nuanced version of what occurred and is often at odds with the initial stock reaction.
How can you tell what's the real skinny, what really matters to the direction?
Follow the price target boosts.
So let's take the two most obvious of last night's big "disappointments:" PayPal (PYPL) and Facebook (FB) . Both companies were greeted with tremendous target boosts.
That's the code, that's what you really need to know.
Sure, Facebook said things are going to slow dramatically. Normally that would sound like a disaster. So why did the analysts raise their price targets? Because each stock has its own personality dictated by the outlook which is offered on the call by the Chief Financial Officer. In this case Dave Wehner. Dave seems almost preternaturally pessimistic on every call. There is not a single time I can recall that he actually said things are going to be better going forward.
Yet look at the stock.
So the analysts, rather than looking at how the stock is acting and then downgrading on the negativity, actually take the other side of the trade and RAISE the price target because they have seen this movie before and recognize the incredible momentum that Facebook has and sense Mark Zuckerberg's enthusiasm.
That caused a price target to be boosted.
PayPal does the same thing. PayPal is one of those stocks that, if you are a trader, you would actually go short into the print, as we call the news, because both Dan Schulman, the CEO and John Rainey, the CFO, seem to want to point you toward all the pitfalls. This time the negativity centered on the homestretch of the torturous separation between eBay (EBAY) and PayPal. For years Dan has told you there will come a time when the separation will be jarring. Well, here we are. But remember, nothing's jarring if we know it is going to happen.
So, what do we get? Price target boosts. Of course the magnitude of the price target boost is the best way to gauge enthusiasm. The obvious, for example, was Alphabet (GOOGL) , showered with PT boosts.
But did you know that the alleged disappointment of that evening, Apple (AAPL) , had nothing but price target boosts? Same with Microsoft (MSFT) . The target boosts will influence and often determine the direction of the stock when the smoke clears.
What would be the tip-off that the stock isn't going anywhere? A reiteration of a "buy" with no price target boost.
And what's the disaster? A "buy" to "hold" of course.
Going forward I want you to follow the boost. You get enough of them, you have a trampoline and you know, despite the chatter, that you have a keeper.
(Facebook, Microsoft, Apple, Alphabet and PayPal are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
