Join Jim Cramer, Doug Kass, Helene Meisler and other RealMoney pros at TheStreet.com Investment Conference on "Best Ideas to Make Real Money." Save the date: Saturday, May 2! More details here.
Editor's note: This was originally published on RealMoney. It is being republished as a bonus for TheStreet.com readers. To subscribe to RealMoney, click here.
As a sell-side analyst in recent years, I followed L-1 Identity Solutions (ID), which is involved in a range of ID programs from driver's licenses to facial recognition software. Trouble is, management simply couldn't resist the urge to promise too much. They were one of a number of management teams that had built a reputation for "overpromising and underdelivering."
So what do you do if you like the business but can't believe management? Sit and wait. In time, you can acquire stock in such a company at a greatly reduced price, usually when most others have thrown in the towel.My colleague Steve Gear wrote a comprehensive review of the company's virtues a few weeks ago. I don't quibble with Gear's analysis and agree with him that the stock holds great appeal now that it trades below $4. I'm just glad he didn't recommend the stock when it was at $10 last year, $20 in 2007 or $30 back in 2004. In the span of the last five years, L-1's CEO Robert LaPenta serially offered quarterly guidance that was simply unobtainable if you bothered to do the math. For many of us, it came as no surprise when he would suggest the next quarter that "we missed our targets last time for reasons beyond our control, but we'll blow away our targets this time." And therein rests the most important step an investor can take: refraining from buying an appealing stock. Instead, listen to management's goals on the conference call and then listen again the next quarter to see if they delivered what they promised. If they "underpromise and overdeliver" for several quarters in a row, then it's time to buy the stock. Conversely, constantly missed targets signal that you should avoid the stock or even short it.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV