Trading Tips

Going public is a sign that a company has a proven and tested concept. While it may not be profitable yet, it plans to be. The process of going public involves filing paperwork for an initial public offering, or IPO.

Ride-share firm Lyft just joined the ranks of publicly-traded companies last week with its IPO, beating out other ride-share company Uber. Initially priced at $72 per share, early trading saw shares rally to over $80, before falling under the IPO price and into the $60 range.

What happened? All IPOs should ideally price shares high enough that initial investors can get out at a reasonable profit. And so that the company can raise capital from the stock sales to fund its needs for a while. But they also need to be priced low enough to move higher, to create market confidence. If they fall, it’s considered a “failed IPO.”

That’s not necessarily a bad thing. Facebook shares plunged 30 percent from their IPO price within a few months of going public. While that made the social media giant the poster child for a failed IPO, it also forced the company to think about its shareholders. As a result, it changed a number of practices to improve revenue and profitability—and more than five years later, the company has handily beaten the market since then.

With Lyft shares looking like a failed IPO, now may be a good time for individual investors to buy in. By doing so, they can pay less than the banking syndicate that paid the IPO price of $72 per share. Of course, all companies are different, and Lyft has a more challenging business structure than Facebook. The company makes its money by high-volume, but low-margin transactions, so investors looking to buy need to consider future profitability, not just price.


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The Walt Disney Company is known for many things—Mickey Mouse, princesses, world-class theme parks. Its more recent acquisitions into Marvel, Pixar, and now Fox Entertainment make it a great company.

But a great company doesn’t always mean it’s trading at a great price for investors.

That’s the case right now.

Shares of the media conglomerate surged following the announcement of its new streaming service, Disney+. With a huge entertainment catalogue and a starting price point of $7 per month, the company will be going head-to-head with the lowest-cost streaming services, some of which still interrupt their shows with advertising.

While the move is a great one for the company, it’s a move they could have started years ago. For the past few years, shares of Disney have traded in a $95-115 range, as solid operating results have come up against the ongoing deterioration of its lucrative cable contracts. As more and more folks move online, the amount of revenues gotten from its cable channels, particularly the ESPN franchise, has been declining at a rapid rate.

The new announcement has moved shares to the $130 range. Until the new service is fully built out, we’re looking at a new trading range, likely from $115 to $135 per share. Investors looking to own this great company should wait until they’re down to around $120 or so—even if it’s during the next market pullback—before buying.

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One simple way to find excellent investment prospects is to look for a company that’s the equivalent of a toll bridge spanning a river. If someone wants to cross, they have to pay a toll. The alternative may be to go to another point, costing time and distance far in excess of the toll.

These “toll booth” opportunities tend to reward investors disproportionately thanks to this built-in advantage that they have.

Nearly every investment sector can have a toll-bridge opportunity if you know where to look.

As news unfolds about the 5G network, and as companies position themselves with shifting alliances like something out of an episode of Game of Thrones, a toll booth opportunity exists as well.

That opportunity is with cell tower companies. These companies are all structured as REITS, to reflect the fact that they have a physical presence in the real world. Without cell towers and repeaters, the cell phone connectivity that we take for granted simply wouldn’t exist.

While these companies may not pay the high dividends compared to other REITs, they do have much bigger growth opportunities. As the 5G network rolls out, they’ll act as that all-important toll bridge between someone’s cell phone and the network itself. That’s a powerful position, and one that can’t be easily replaced.

This new battleground sector is ripe for profit. But only one area offers the best prospect for consistent, high-margin profits for investors going forward.

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Big companies get into trouble all the time. Most of them are big enough to recover. Kraft-Heinz (KHC) is no exception.

Right now, expectations at the company are low. That’s due to the company’s $15 billion write off of goodwill on its balance sheet. Goodwill is an intangible item, indicating how much the company paid to put together the merger versus what shares were priced at when the offer was made. It’s a standard accounting item—everything has to balance. It’s one that doesn’t impact cash flow or earnings.

However, the write-down was an acknowledgment that the company wasn’t performing as well. Its combined portfolio of brands wasn’t seeing the anticipated growth. That’s somewhat normal, and given how the company is still profitable, just not as profitable as expected, is creating an interesting value today.

Remember, when a company can seem to do no wrong, its shares will often get priced for perfection—and then head higher. When the news is bad and big, like the $15 billion write down, markets tend to overreact. Going forward, shares look reasonably priced. And in investing, it’s what things look like going forward, not what just recently happened, that matters.

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Investing is a never-ending marathon, not a sprint. Yet Wall Street traders tend to rely heavily on trading opportunities centering on earnings season. Four times a year, a company reports earnings, as well as their guidance for future quarters. These days can see big swings in a company stock price—making it one of the best times to trade.

But there are other developments the other 89 days of the quarter. And with so much focus on bottom-line earnings, more mundane announcements often don’t cause a rapid price move in shares.

That’s good news—or bad news—for investors, depending on what’s reported. In the category of good news, however, we know a few things that tend to cause stock prices to rise more often than fall.

For instance, a company reporting layoffs tends to see its share price rise. Shrinking the headcount at a company can reduce payroll expenses and increase profitability. While it may sound callous, the market responds to the company’s improvement, not the workers who are worse off.

A company may also avoid earnings season to announce a big acquisition or the development of a complementary product or service that can gain market share, improve profit margins, or otherwise improve profitability. If these announcements happen quietly, like on a company blog, it may take a long time to get priced in. If announce at a conference, there may be an immediate bounce on hype, that will die off before a longer-term profit can be made.

In any event, items discussed by a company outside its earnings may have an impact on how they perform down the line. Looking out for announcements like a new product or sizeable layoff can be a good sign that a company’s shares will rise in the coming weeks and months.

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While investors typically have a passive role in their investments, they do get to weigh in once a year during a company annual meeting. Usually, that’s a boring affair, laden with Wall-Street speak and accounting terms designed to make eyes glaze over.

But there’s one huge exception: the annual meeting of Berkshire Hathaway (BRK-A). The meeting makes Omaha the ultimate travel destination in the first week in May for any investor. It’s a circus with all sorts of booths, attractions, and resembles a bit of a country fair or circus as much as a corporate business meeting.

And while corporate matters are dealt with in just a few minutes, there’s a celebration all weekend long—and best of all, a chance to ask questions to CEO Warren Buffett on just about anything.

While most headlines for the meeting may have touted things like Buffett’s views on Bitcoin (like gold, it has no cash flows for him to analyze so it looks like a gamble), it’s also an opportunity to discuss changes in the Berkshire portfolio.

This year, Buffett had a lot to say, particularly about his 2013 investment in the merger between Kraft and Heinz. And a recent disclosure about the purchase of Amazon shares in the most recent quarter attracted some attention as well.

Investors looking to follow Buffett and his long-term market-beating track record have a lot to digest here.

The biggest takeaway? Existing companies in the Berkshire portfolio that can be bought at similar or more attractive prices than what Buffett and his investment lieutenants paid. And shares of Berkshire themselves may look increasingly attractive as the company puts is massive cash hoard towards buying back shares.

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There’s an old investment adage to buy when things look dour. While that sounds great in theory, human psychology makes it difficult. Even thinking about investing in a stock that’s been declining—or has been making news headlines for a defective product—tends to put our caveman brain into flight mode and avoid it all together.

But a pause to think more rationally is where the opportunity arises to beat the market. Recognizing that a company is out of favor for short-term reasons, we can then look a bit further down the line. If that company can solve the problem before it goes bankrupt, then it may be a good investment.

One company that has been getting hit with bad news day after day is Boeing (BA). The airline manufacturer’s woes regarding its 737 Max plane are well known. Shares are up over the past year thanks to the strong stock market rally, but a cloud is hanging over the company in the short-run.

That will prove short-lived. The company’s diverse line of planes shows that the 737 Max is just a small part of the company’s overall operations. And the software issue will be fixed in time—and likely at a far lower cost than a physical manufacturing defect would be as well!

Thanks to the selloff, shares of the company are trading around 16 times forward earnings, a nice discount to the overall market. When we consider that Boeing operates as part of a global oligopoly, with no domestic competitors, we can see how potentially attractive shares really are right now, in spite of the dire news headlines.

It’s not an extreme crisis, but for a solid blue-chip company, it’s enough of a crisis to create a value in this otherwise extremely bullish market.

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In Silicon Valley, there are hundreds of privately-held companies known as “unicorns.” That’s a term for a company that has a valuation of over $1 billion based on the last round of equity they sold to private investors.

Many of these unicorns will continue to grow and increase in value. Others will fail. A handful will go public. A few have already gone public this year, with more on the way.

Some of the biggest names this year have been the ride-sharing companies. In this space, the biggest company in terms of market share is Uber (UBER). However, it let competitor Lyft (LYFT) go public first—and given how Lyft shares have failed to rise past their initial publicly-traded price, Uber shares look likely to do the same.

Given how Uber’s market valuation is nearly $60 billion in spite of a weak IPO, however, investors may want to look elsewhere.

At a $60 billion valuation, the company still doesn’t make money, and has even indicated that it may never make money. That doesn’t mean it will fail anytime soon, but it does mean that the best thing Uber can do for folks is save them money on rides compared to cabs.

Investors looking to tackle a high-valued company going public would be best to look elsewhere and away from bigger and more well-known names to avoid the risk that comes from buying a highly-valued firm to begin with.

One alternative is Beyond Meat (BYND). Although the company just went public and its shares have doubled, its overall valuation is more reasonable. It’s on track to move from generating revenue to actually making a profit and having earnings for investors.

And it’s just scratched the surface of its market potential in plant-based meat alternatives. That’s a far cry from the saturated ride-share market where the biggest names went public at hefty valuations.

In investing as in time, it’s all relative. And relative valuations matter. If you’re looking for a new play in today’s booming market, look no further than some of the smaller IPO plays out there like Beyond Meat.

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There are a lot of ways to make money in the market. But even if you find that rare company that can move ten-fold and provide one of the best profits of your lifetime, that will take time. Most investors get impatient.

There are far more investors interested in companies like Amazon (AMZN) today, now that it’s proven its profitability. But even if you invested in the company back when shares were far cheaper, chances are you wouldn’t have taken the full ride. Instead, you would have cashed out and left a huge chunk of potential profits on the table.

Rather than try and find the next ten-fold winner, investors looking to buy great companies at bargain prices can often find such a few such opportunities per year. These blue-chip bargains can give investors a solid and growing dividend so that they’re paid to wait. And even better, by buying when shares are oversold and the sentiment is negative, there’s a good chance to see some capital gains right away as well.

One such opportunity right now is forming in 3M (MMM). Back in April, shares dove 20 percent as the company announced a drop in earnings and sales. While some are starting to extrapolate the end of the company, some perspective is helpful.

For instance, 3M sells over 60,000 products across a variety of divisions. By getting rid of the lowest-selling or most unprofitable 10,000 products, the company could realize millions in savings while also improving its profit margin in total. If they sell off those products rather than shut them down entirely, they could even make some money while doing so!

With sentiment so negative and with shares so oversold right now, there’s a good chance shares will trend higher in the coming months. And with a 3.5 percent dividend yield now, there’s a nice income to be made on the side.

Even better, the company has paid a dividend consistently and has managed to grow it over the years. Buying dividend growth companies after they’ve taken a dive is often a good way to get a better starting yield and get your wealth growing over time in a low-risk way.

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There’s an old market adage to buy when there’s “blood in the streets.” But there are plenty of ways to draw blood.

In today’s litigious society, one such way is with a big lawsuit. From hot cups of coffee to weed killer that may be cancerous, it’s no surprise that America still leads the world in producing lawyers who need something to do—which usually means finding someone with deep pockets to sue.

While many cases have their merits, a favorable jury will often hand out pretty sizeable sums—and that kind of news can set back the shares of a company’s price. The days of the biggest legal battle of them all, regarding the tobacco companies and healthcare costs, seem long past.

But are they? In the twenty-first century, new legal battles are forming. And one place they’re forming in are in the opioid space. Abuse of opioids—legally and illegally—have been on the rise for a long time, and some places are starting to go after the companies that manufacture them.

While some pharma companies have already settled with states to avoid the potential for large jury payouts, one company is bucking the trend. Johnson & Johnson (JNJ) is defending itself against the state of Oklahoma, which is suing the company on the basis that it helped to fuel the crisis.

While we don’t know yet how this trial will end, we do know that these often high-visibility trails don’t kill companies—although they do hurt their share price in the short-run. From McDonald’s to the tobacco space, buying during times of literal trial are often the most profitable.

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