Wednesday, August 5, 2009

Olin Corporation, GE Shake Off Bad Days

Olin Corporation, a company that makes chlor alkili products and owns Winchester Small Arms as a division, lowered its guidance on July 27th after the bell. The stock plummeted the next day. As of now, though, it's closed at above its July 27th high. That high was $14.26; today's close was $14.59.

I offer this follow-up as grist for thought. Olin is the second Bin stock to take an earnings-related tumble; General Electric was the first. GE announced its 2Q earning before the bell on July 17th. On July 16th, the stock closed at $12.40. The day of the announcement, GE stock got hammered down to $11.65 and drifted lower for a couple of days. Today's close was $13.99.

Olin's was a guidance tumble; General Electric's was an earnings tumble. Both ended up shaking off their respective slam-downs in less than two weeks.

There's a time to dump a stock that's disappointed and a time not to. My little experience with the Low P/E Bin suggests that, at this stage in the market, selling a low-P/E, high-yield stock because of a near-term disappointment is usually a bad idea. Even Tesoro, a refining stock that got pummeled for more than a week in early July because its crack spreads were being squeezed, eventually recovered to the level it was at before a Goldman Sachs analyst had panned it. As I noted earlier, the stock's took quite a pounding that caught me flat-footed. Currently, Tesoro is fluctuating around the price it was at when Goldman disseminated the report.

I hesitiate to offer a definitive conclusion, because we're in an expected-recovery market. I have no experience of a bear market as a Bin watcher, nor have I even experienced a full-fledged bull market. So, I'll confine myself to this observation: I had all three of the above stocks in my actively-managed Marketocracy mock fund. I still have GE, which I don't regret. I don't have Olin anymore, as I sold it the day after the guidance lowering, and I regret having done so. I got rid of Tesoro at a loss, and I have some grounds for regret.

It's sometimes a good idea to think twice before letting go of a stock that's run into some near-term difficulty. I offer the opinion that, for low-P/E high-yield stocks, now is one of those times when thinking twice is called for.

Note: I am not licensed to offer investment advice in my home jurisdiction of Ontario in Canada, nor an I qualified to become licensed.

1 comment:

  1. That old saying they bring good things to light may not always be true.