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Alcatel Lucent SA (ALU), Amgen, Inc. (AMGN): Illogical Trends on Thursday Might Create Value … or Value Traps

Despite the strong quarter, and year-over-year sales declines of just 1.3%, the stock fell lower by over 5%. The company’s earnings, under normal circumstances, wouldn’t look good, but this is a company that is priced with extreme value and is going through significant restructure. Furthermore, the company announced the resignation of its CEO, which was encouraging news at first, seeing as how the stock has lost more than half of its value during his tenure.

The bottom line: This is a cheap company with a price/sales of just 0.20 that is breaking up its losing segments to sell them and become a profitable business that focuses on its growing segments. The company trades with a much deeper value than any other stock in its space, therefore any beat of expectations should have resulted in a massive move higher, and not a change in direction.

Conclusion

A stock’s performance after earnings does not necessarily mean that a company posted a good, or a bad, quarter. Too often we associate stock performance with fundamental performance, yet it’s the inconsistencies between these two factors that create value. The ability to identify these inconsistencies is a psychological behavior changing skill that very few investors are able to perfect. In the past, I have talked about this subject in great detail, and have taught investors how to change these tendencies to return large gains. My advice is to become a smart investor, by learning how to read quarterly reports and assess the quarter without looking at stock performance. Then, if a stock trades incorrectly you are able to capitalize on the value.

The article Illogical Trends on Thursday Might Create Value … or Value Traps originally appeared on Fool.com and is written by Brian Nichols.

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