There's nothing wrong. Stop trying to say there is! That's my retort to those who, when they see a stock go down after earnings, presume that there must be something awry, something amiss, and they must sell.
Take two companies that just reported in the last 24 hours, Penn National Gaming (PENN) and DraftKings (DKNG) . Both companies reported sharply better than expected sales. Both companies are well on their way to dominating one of the true growth areas of this economy, gambling. And both are exceedingly well run. Penn National has harnessed the talents of Dave Portnoy and his Barstool empire. DraftKings, which I have done work for, has an electric site and relations with big-time partners that bring in lots of new gamblers every week.
All of the research supported this view.
Yet the stocks went down after they reported.
Almost immediately I heard that the quarters weren't that good at all and gambling has peaked.
That's just untrue. There is zero evidence of that. What happened is that there are sellers of these two stocks for reasons we don't know and might not ever know.
That's why I like to do things in a vacuum. I like to read the conference calls of companies, these two companies and others like them at my home, at night, with no distractions. Then I can formulate my opinion about what I think should happen and tell you whether I would buy it or not.
In both cases, in that vacuum, I like the stories very much. I am not going to let the action deter me from recommending them because I think the sellers are wrong.
I would feel differently if the companies' managements said that they expect business to tail off when the pandemic winds down, something, for example, that Etsy (ETSY) predicted on its quarter. I had qualms saying that one's going lower, although down here I think it more than compensates for the weakness. If you, however, do not let the stock dictate the action, you will do the right thing far more often than you realize, especially in this tape.
Some examples: earlier this week we had Michael Neidorff, CEO of Centene (CNC) on Mad Money and I examined the company and listened to the quarter and interviewed Michael all in a vacuum refusing to let any movement in the stock impact my judgment.
I came out, said it should be bought. Almost immediately the stock headed down and I did not back away. I went the opposite way, betting that my judgment was simply better than those who were selling, that they knew less and were less familiar with the industry. Boom. The stock's up 10%.
One more: Nucor (NUE) . I have followed this great American steel company since 1981. That's right, 40 years. Nucor came on the show when it reported and, again, I choose to look at the numbers in a vacuum. I am glad I did because I knew that, after listening to CEO Leon Topalian that this moment may be the best it's ever been for Nucor since I started analyzing the company. That way when the stock did nothing on the quarter I knew it was a mistake and you had to buy it. My only regret was that I didn't pull the trigger for my charitable trust. I have restrictions that forbid me from immediately buying it so I missed a 10% move.
So, next time you are shaken out because of the action I need you to remember these examples. Trust your instincts not the direction of the stock. You will often know more than the stock itself.
