Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

IPO: BX Blackstone or SOL – Renesola

leave a comment »

One of the core ideas of the Investor’s Business Daily is that powerful earnings growth is the driver behind big stock moves.  As a corollary, big stock market winners are often found in new companies, companies that have IPO’d with less than eight years on the market.  What is the rationale behind this? Why did IBD’s research find this to be the case?  In a word, it’s innovation. Companies with successful new products or new management win market share and can make money hand over fist. With a turnaround showing up in the numbers, Wall Street sits up and takes notice, bidding up the stock price.

 

A good place to “shop” for stocks is among those that have recently IPO’d and just come to market.  Should you just buy it straight away from a syndicate broker?  Generally no.  Instead, wait for the stock to make its first base, or consolidation, and judge it’s action from there.

 

Blackstone (BX) is a good example of a failed IPO.  By failed, I mean failed for the Joe and Mary Lunchbuckets that bought the stock hoping to play along with the big boys in private equity.  It was obviously a winner for those that unloaded dear shares onto the market. (See the recent lesson in LVS for a primer.) 

 

 

This next one shows the rewards for waiting for a confluence of a market up-trend, hot sector, and idiot momentum money.  With a ticker named after our sun, SOL, you can figure out quickly this is a solar stock. In this market, facing $120+ oil, solar power is coming into comparative costs with other sources and the market is taking notice.  IBD puts SOL’s earnings growth in the top 1% of public companies.  That’s what I like to see. 

The stock put in a saucer base nearly three months long (Point A) emerging in a solid breakout at Point B. What if you missed that break out as a trade?  No fear.  Stocks that charge ahead like that will often make subsequent bases, providing reasonable entry points.  At Point C it started a new base that lasted nary a month.   A proper buy point is when it emerges from that base into new high ground Point D.  The logic is simple:  all stocks are bad unless they are ready to go up. A stock treading sideways may be suffering from distribution; waiting until it emerges from a base into new high ground puts the odds in your favor. 

Note how along this month’s advance, the daily lows glide above the 5 day moving average line. For quick traders (scalpers), consider a violation of that 5 DMA as a sell stop level. 

 

Advertisements

Written by heyercapital

May 20, 2008 at 11:12 am

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: