Every good trade has a lesson that you can learn. In a recent column, Real Money’s Paul Price writes about turning around a trade that -- on paper -- could have gone terribly wrong.
Signet Jewelers (SIG) - Get Signet Jewelers Limited Report couldn't have been hated more during the summer of 2020, Price said. Shares that had peaked north of $152 back in 2015 briefly got down to south of $6.
So far this year, Signet shares are up more than 186%. In the past 12 months, the stock is up almost 700%.
Price saw that analysts missed the huge opportunity to catch SIG's move because they consistently stuck with over-pessimistic estimates, even as quarter after quarter of real results proved them wrong. Get more of his trading ideas and investment strategies on Real Money.
COVID-induced shutdowns of Signet’s physical stores led to huge losses in both fiscal first and second quarters last year. Analysts were projecting more bad news as far as the eye could see.
“Under those circumstances, most investors would be selling or at least avoiding the shares," Price writes. “Not me, though, I became a buyer of SIG shares and a seller of its long-term puts while the hate-fest was in full-force.
My only regret is that I didn't buy much more.”
That’s the thing about dumping stocks in response to a market panic. Investors often miss the trees for the forest. In finance terms, you can spend so much time looking at what’s going on in the world and the market at large that you forget to ask yourself the important questions. Like, how much is this company actually worth? Should investors really be selling their stock, or is this just panic?
In the case of Signet Jewelers, Price bet big on the latter. He started buying in at $7.71 and stopped at $23.74, spending a total of $29,584 to open his position. And then?
“Signet blew through all estimates in its fiscal Q1 report. The company also reinstated cash dividend payments and raised guidance for the next quarter and full year. The stock responded well, carving out a new 52-week high of $74.80, before closing on June 10, 2021 at $69.58.”
Price carved out a position worth more than $124,000 when all was said and done. The lesson? Pay attention to the assets you’re actually trading. Often that can tell you more than any amount of market data can.