This past week on CNBC’s Fast Money program, Greg Troccoli was doing a segment of chartology, which he has done on past Mondays.
He started out saying that the market had resistance at 980 and then said that General Electric (the parent company of CNBC) was a great long investment at $12.50 per share.
Although personally that is the polar opposite of my own opinion, and a case could be made both for and against GE, his predictions do have some validity.
He then went on to say that Wal-Mart (WMT) should be shorted because the company is making lower highs from last year and, he said, the stock is turning over
Although Wal-Mart at these levels is among the last stocks I would personally short, I respect Trocolli’s right to his opinion
Then the foolishness started. First, he said that you can “define your risk” by shorting WMT around $48 and putting in a stop above $50.
No offense, but that is like saying that you will define your risk by spinning around in circles and then stopping once you become mildly dizzy.
Fact is, defining risk is really meaningless if you are doing something which is unsound on the face of it.
Then he went all Joe Biden. Troccoli said WMT is going down to $35 per share because it has over-expanded.
First of all, Wal-Mart-should earn $3.55 per share and the PE ratio over the last 13 years has ranged between $14 and $60. A price of $35 would mean the PE would be about 10, which is absurd and unprecedented.
Second, the company just authorized a $15 billion stock buyback last month. So, if the Dow dropping to 6,700 did not get the stock under $46 dollars without the buyback, how could Wal-Mart go down to the $35 level — which it hasn’t seen since 1998, when the earnings per share was not even $1dollar per share — with the Dow now over 9,000 and the company greedily buying billions of dollars of its own stock?
Karen Finerman, who is reportedly worth $100 million, said (out of character, I might add): “That’s crazy.”
She added that the PE ratio would not even come close to that, and that the earnings per share of the company has never dropped year-to-year in its almost 40 years as a public company
It’s outrageous that someone so foolish could be on national show, but then I realized that the reason I have never had a job other than allocating capital is because men like Troccoli often calculate too much and think too little.
The point here is not a difference of opinion. The point is, do your homework.
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