Wall Street offers plenty of witticisms, wise sayings and words of wisdom. Here’s a sampling.
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Let the trend be your friend. Stick with what’s real, not how you feel. Bulls make money, bears make money, pigs get slaughtered.
If you like to pick great stocks, please allow one more platitude. Keep seven simple words in mind: “What have you done for me lately?”
Big winners go on big runs for three primary reasons. One, the market is jamming. Two, their fundamentals are humming. Three, institutional investors — mutual funds, large investment advisors, banks, pension funds — bet heavily on true industry leaders.
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Consistent, long-term earnings growth and sales increases power strong fundamentals. But when growth slows or comes to a halt, watch out. The big funds quickly become net sellers, not net buyers. And the risk of losing money on new buys or surrendering significant paper gains shoots straight up.
Watch the C (current earnings and sales), A (annual growth in the top and bottom lines) and I (institutional sponsorship) in the IBD seven-factor system for investment success, CAN SLIM. When growth shows sign of crumbling, so can a stock’s big run. If the latest breakout is a dud, then the stock is telling you that something is truly wrong.
Gilead Sciences: 2003 Vs. 2015
After the 2000-2002 dot-com crash ended, Gilead Sciences (GILD) soared into stock market stardom. A March 2003 breakout past a 38.48 double-bottom buy point (before stock splits) set the stage for a 500% run through a peak in August 2008. Another breakout to all-time highs in August 2012 by the HIV medicines pioneer unleashed a 333% climb to its peak near 123 in June 2015.
A swell in earnings (from a split adjusted 18 cents a share in 2003 to $12.61 in 2015) and sales ($868 million to $32.6 billion) clearly justified the big run. But things change. In Q1 2016, Gilead’s profit grew only 3% vs. a year earlier, marking a second quarter in a row of sharp deceleration. Sales growth slowed sharply, from 37% to 16% to 3% over the same period.
Then another astonishing thing happened. Gilead’s growth engine stalled.
Earnings fell 2%, 15%, 19%, 26%, 17%, 17%, 34%, 34%, 25%, 19% and 19% vs. year-ago levels over the next 11 quarters. Sales shrank too.
“What have you done for me lately?” Gilead answered in an ugly way.
In May 2015, the biotech cleared a 107.60 buy point in a six-month saucer with handle, but gained less than 15%. Over the next four years, Gilead shares plunged 50% from its 123.37 peak.
This article originally was published March 5, 2020. Follow Chung on Twitter at @SaitoChung and @IBD_DChung for more on growth stocks, buy points, sell rules, breakouts, chart analysis and stock market insight.
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Source: https://www.investors.com/how-to-invest/investors-corner/how-to-trade-stocks-know-seven-most-important-words-wall-street/?src=A00220&yptr=yahoo