Paying attention to the news and world events is part of investing. What kind of weather conditions are there in 'Tornado Alley?' Is it hurricane season on the atlantic coast? These weather conditions are the reason to expect Home Depot (HD), or Lowe's (LOW) to increase sales in extra wood and nails to protect property. After the storm, property owners will return to home repair and supply stores to buy all the materials needed to repair the damage done by severe weather. Ahead of these events would be the time to look at home supply stores and their suppliers of the things they sell.
We can buy stock in the companies that produce paint, roofing, insulation, lumber, adhesives, and the many other items property owners need to protect property, then later to repair property damage. Look for companies that cover several products that a home owner would need. This would increase sales of the company your considering to buy.
Weather has an effect on how consumers spend money. Natural gas recently had its price plunge (Aug 25 2010). A very active hurricane season was forcast, but it turned out to be very quiet. In addition to this the summer was hot, and an anemic industrial demand was likely to continue, together these two would cut down on the expected demand of gas.
If you had bought any of these 'Shale players', Chesapeake Energy (CHK), SW Energy (SWN), Range Resources (RRC), or Petrohawk Energy (HK), it was very likely your stock price would lower (not what you want). The effect on price was to lower these stocks 20-30%. The reason for this is that the cost to produce the gas exceedes futures prices of gas, causing a lose for the producer. Another way to say this is, the cost to produce natural gas is more than what it's selling for.
To buy a 'Shale player' we need to consider the economy. Are factories working (gas usage), and what are the effects of weather on the stock I'm considering? Will it be a hot summer (air conditioners), or a cooler summer (heat homes at night).
Technology is another example of trying to get the whole picture. Perhaps you're looking at a company that makes chips for computers. Start by looking at the companies that produce the entire finished product for home and business computers, like Dell, Gateway, Hewlett-Packard. Does the news talk about computer sales slumping, and an inventory glut in computers? Now if computer sales are down, and their are deep discount sales to lower inventory, but nobody is buying, that's a problem. We would expect the chip maker to have an inventory that is excessive, and the price of chips to fall due to an excessive inventory. If the computer maker isn't building computers, he isn't buying chips. If the chip maker has no one buying his chips, then the inventory will grow, and stock price will begin to fall, or continue falling. This would cause your chip maker stock to lower in price (not good for the investor).
This lesson is to allow you to see that when investing, we need to see the whole picture to decide if the stock we wish to own will be profitable. To be profitable the stock must have growth, if no growth exists then the stock will fail as an investment. More about this can be learned at http://www.youcontrolinvesting.com/. You will learn important lessons in fundamentals, and technical analysis, to allow you to have confidence in your choice of investments.
Good Investing,
Bruce Cortez, Instructor
Email: Bruce@YouControlinvesting.com
www.Twitter.com/StockmktTeacher
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Who knows everything can influence the price of a stock.
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