3 Conditional Stock Plays
While we can use technical screeners to find a list full of recommended stocks, sometimes there are just great stocks you have to play even if they don’t meet your criteria.
Some of these examples includes stocks that are releasing new products or the related sector is experiencing a boom. There are a lot of different examples, but the key is that all these plays are what I like to call “conditional plays“.
In other words, Stock A should change in price here; given the condition that theory A is met.
As stocks begin to move more and more on perception over factual events, the importance of conditional plays have increased. Especially since you want to be in the stock before the event is realized. Check out 16 more successful trading strategies
We will look at some conditional plays in second, but lets look at a common example first…
The perception around the market is that Company XYZ is set to report great earning numbers after the market closes. The conditional plays is the the stock of Company XYZ should rise if these numbers are indeed good.
Throughout the day leading to the report, stock of Company XYZ increases based on this perception of great numbers. Once the company reports, the numbers weren’t exactly good as analyst thought and… BOOM… the stock heads lower.
As you can see from the example above, conditional plays can be somewhat of a risky move if the conditions are not met. Then again, that is the risk one would assume with this type of play.
Lets look at some conditional plays…
Schlumberger – SLB
As oil has risen from its recent bottoms, so too as Schlumberger (SLB) and I see that continuing well into 2010.
The conditional play here is that as the price of oil increases so will the price Schlumberger. Oil producers will need cost-effective measures to find reserves and Schlumberger should help.
Motorola – MOT
Granted I am high on their new “Droid” phone, the true outcome for this Motorola (MOT) launch won’t be seen until numbers are reported for 4th quarter 2009. Obviously you will miss most of the price change if you wait until numbers are reported.
The conditional play here is that the price should increased off the Droid launch.
Research in Motion – RIMM
Research in Motion (RIMM) has taken a back seat to the likes of the iPhone and Droid entering the smartphone market.
The conditional play here revolves around the outcome of the Droid. If the Droid doesn’t perform well, then that could would help the price of RIMM. On the other hand, if the Droid does do good, then RIMM will head even lower.
What are some conditional plays you are looking at?
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