Cliff Natural Resources: High Reward, Limited Risk
Sean Hannon submits:
On occasion, the simplest ideas are the most effective. When I sent last Thursday’s bonus article to subscribers of my weekly newsletter EPIC Insights, I focused on Cliff Natural Resources (CLF). With a trailing P/E of 33, a forward P/E of 13, and a dividend yield of 0.66%, the stock was fairly valued and from a fundamental perspective did not offer a compelling reason to either own or be short the stock. Technical analysis led to the same conclusion: after breaking a long-standing uptrend (black line) in early January, CLF had meandered for weeks.
After dismissing a trade on technical merits, I turned to an event-driven strategy. Having just reported robust earnings, CLF was prepared to rally. Never one to chase a move, I examined the prior earnings announcements and saw an interesting pattern. Each time CLF reported results, the direction of the price movement the next day (blue arrows) started a move that persisted for weeks. Expecting a rally and looking to exploit this tendency, I recommended buying the stock with a $55 upside target.
Investing, Long Term Investment, stock market | admin February 25, 2010
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