Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of building products maker Ply Gem Holdings fell as much as 25% today after an analyst downgraded the stock.
So what: JPMorgan Chase analyst Michael Rehaut moved the stock from overweight to neutral, citing near-term operational challenges that "are likely to continue for at least one to two more quarters." A preliminary fourth-quarter sales estimate of $330 million-$335 million fell below JPMorgan's estimate of $365 million and that's enough to turn pessimistic on the stock.
Now what: Short-term weakness or not, we're just at the beginning of a housing recovery and the long-term trends for Ply Gem are strong. Wall Street tends to focus on missing or hitting estimates that are only best guesses anyway, so it's really JPMorgan that had its fourth-quarter numbers wrong, not Ply Gem. I'll also point out that the market's reactions to downgrades are often short term in nature, while it's long-term profits that will drive the stock.
Look at the earnings trends in the fourth quarter, including a growing bottom line, because that's what will move the stock, not the opinion of an analyst at a big bank.
One stock to beat the market
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.
The article Why Ply Gem Holdings Shares Dropped originally appeared on Fool.com.Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.