NEW YORK ( TheStreet) -- How Markets Really Work by Laurence A. Connors identifies many fascinating stock price patterns, and many of the repeating price patterns can be used both by short-term traders and long-term investors.
Connors suggests that buying strength and selling weakness is not always the best choice. As an investor, many factors make up the decision process in allocating capital.
Unfortunately, many investors' reasoning doesn't hold water. Metrics commonly used or at least cited include: Price-to-earnings ratio, revenue growth, earnings growth, etc.
The common metrics have their place and are important for finding a "nail sticking out"/red flag, but when push comes to shove, my impression from years of trading is that most investors use emotion to drive their decisions and follow up with statistical metrics to justify their trades after the fact.In the age of cheap computer power (either physically at your location or through a cloud service), excuses for not knowing your chances of success melt away fast. It's easier than ever to know what to expect based historical results. As an investor, I rely on computers to generate statistical probabilities to aid in my research. One valuable tidbit in Connors' book is that bullish stocks that have recently pulled back in price tend to outperform those that are making fresh highs. Old traders like me know it as "buy on dips," but Connors takes it one step further and tells you exactly what a "dip" is. All of the following companies pay a dividend and are now "dipping" in price. Most pay a relatively fat dividend and have other valuable qualities that are worthy of your consideration. MDT data by YCharts
Medtronic (MDT - Get Report) Background: Medtronic manufactures and sells device-based medical therapies worldwide. Medtronic trades an average of 4.4 million shares per day and has a market cap of $42 billion. 52-Week Range: $33.11 to $44.79 Book Value: $16.91 Price-to-Book Ratio: 2.5 Earnings Payout Percentage: 30% As a result of the recent price decline, investors are receiving a yield of 2.5% for a total of $1.04 in dividends per year. Shares are now slightly lower in the last month of trading. Shares are about breakeven at 1.6% less than a month ago. The drop in price offers us the dip that makes the timing aspect of Medtronic attractive. Medtronic appreciated a very bullish 19% in the last year, and the average analyst target price for Medtronic is $45.16. Will Medtronic reach the target price? No one can say with certainty, but I think Medtronic has a great prognosis. There is almost zero desire by short sellers to move against this stock. Short interest hardly moves the needle at only 0.9% of the float. MDT Payout Ratio TTM data by YCharts
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts