Avoid Companies that Announce These Things

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  • There’s more to actionable trading ideas than just earnings season. Companies often report extraordinary projects well outside their mandated reporting period. And by doing so, they can give investors some timely tips on when to buy—or when to avoid, or even sell, their company’s shares.

    For instance, a company reporting a new, lavish headquarters building may look like a great investment. They’re clearly growing and need the space, justifying the multi-million (or even multi-billion) dollar investment.

    But that’s also a sign that a share price is going to lag—or drop entirely. Even great companies like Apple (AAPL) saw a lackluster trading period in their shares that lasted most of the time they were working on their new headquarters building.

    But for lesser companies, or even more cyclical ones, the decision to expand a headquarters tends to be made near the top—at a time when they should be looking at how to scale back or defend from a market decline, rather than overextend themselves for some swank office space (at shareholder expense).

    Other times, companies near a peak may decide the best way to grow is to simply buy up another company. While that may make sense, most mergers are sold as something that will move the bottom line far more than it actually does. And acquiring companies tend to overpay, leading to underperformance later. We just saw this happen with a $15 billion value write down at Kraft-Heinz, the food conglomerate that merged just a few years back.

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  • Companies that make certain announcements may as well be broadcasting to the investment community that their shares will underperform for a while— and possibly even cause a company to go bankrupt.