Investing in the stock market can be a thrilling endeavor.
But staring at stock prices all day or skimming over market recap articles won’t help you make money.
Instead, it’s important to figure out why certain stocks are moving and how you — through the application of fundamental principles — could’ve predicted it all along.
Let’s look at three stocks that made big moves last week and what we can learn from each one — with some help from the ever-quotable investing legend Warren Buffett.
Macy’s (M)
Shares of department store giant Macy’s soared a whopping 18% on Thursday after the retailer posted better-than-expected quarterly results and offered an upbeat outlook.
The company’s second-quarter net income increased to $345 million, on revenue of $5.65 billion. More importantly, Macy’s same-store sales for the quarter — a key metric in the retail space — spiked 62% over the year-ago period.
Management even reinstated Macy’s dividend, and the board approved a $500 million share repurchase program.
Macy’s shares were walloped at the height of the pandemic, falling as low as $5 in March of 2020, but management’s turnaround strategy continues to gain traction.
Thanks to the chain’s steadily growing popularity among younger customers and increasing e-commerce sales, the stock is up more than 300% from those pandemic lows.
The lesson?
Often, a good time to jump on a stock is when no one else is. It’s almost impossible to time a stock’s bottom, but if the worst-case scenario is already baked into the price, your chances of long-term success improve greatly.
As Buffett has famously said, “Be fearful when others are greedy. Be greedy when others are fearful.”
Lowe’s (L)
Lowe’s shareholders had a nervous feeling heading into the chain’s second-quarter earnings release. On Tuesday, main rival Home Depot saw its shares dip 5% after posting disappointing sales for the quarter, raising a cloud of uncertainty over the entire home improvement space.
But on Wednesday, Lowe’s bucked the odds, reported strong earnings and revenue, and saw its shares fly as much as 10%.
For the quarter, Lowe’s posted earnings per share of $4.25, versus the average analyst estimate of $4.01. Revenue of $27.57 billion also topped expectations of $26.9 billion.
Looking ahead, management now sees full-year 2021 revenue of $92 billion, up from an earlier view of $86 billion.
The takeaway?
Don’t let short-term noise impact your investment decisions. If you are a firm believer in Lowe’s long-term prospects, panic selling because of one bad quarter from a close rival isn’t a very wise thing to do.
Like Buffett recommends, “Only buy something you’d be perfectly happy to hold if the market shut down for 10 years.”
Robinhood Markets (HOOD)
Finally, we’ll take a look at stock-trading app Robinhood, whose shares are down about 14% since the companys disappointing Q2 results came out late Wednesday.
During the quarter, revenue more than doubled to $565 million, fueled by a huge spike in crypto-related trading. But investors fled the stock after management provided downbeat guidance due to a slowdown in trading activity.
Investors are also concerned that crypto trading is becoming an unsustainably large part of Robinhood’s growth.
Crypto transactions accounted for more than 50% of the company’s transaction-related revenue.
The stock is now at its lowest price since shortly after its initial public offering (IPO) in late July.
The lesson?
Leave IPOs to seasoned traders and less risk-averse investors. While IPO investing can be an exciting world, studies show IPOs tend to underperform over the long run.
“An IPO is like a negotiated transaction — the seller chooses when to come public — and it’s unlikely to be a time that’s favorable to you,” Buffett once said. “So, by scanning 100 IPOs, you’re way less likely to find anything interesting than scanning an average group of 100 stocks.”
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
