A Falling Stock Isn’t Always a Cheaper Stock

One of the hard parts about investing is that good buys are often tarnished in some way. That’s why the market discounts the price. You have to be brave enough to overlook the bumps and bruises to find a gem (yep, I’m mixing metaphors—deal).The key for investors is judge whether the negatives are truly damaging to the business or merely a passing problem.
I’ve gotten some emails recently about BP (BP). If you’re not familiar with this story, the company has apparently had some public relation problems of late. Hey, these things happen. BP’s stock has dropped sharply from about $60 about six weeks ago to around $38 today.
So it’s a bargain, right?
Probably not. Just because the stock is down, doesn’t mean BP is a good buy. It only means that it’s cheaper than where it was, and that says little about where it will be. I think investors would be well-advised to steer clear of BP. The shares will hit bottom but I don’t think that’s come just yet. The difficulty is that even if this is a tremendous overreaction, the knowledge required to make that judgment is way outside my expertise. It’s not just me. It’s outside everyone’s expertise because BP’s future will probably be a heavily politicized one.

Posted by on June 3rd, 2010 at 12:56 pm


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