Tug-of-war investing at Under Armour
Today's Financial News - Posted March 24, 2009
Under Armour (NYSE:UA) is under pressure from both sides. Analysts say it is going down, while emotional investors continue to fall in love. Somebody is going to lose.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Have you ever had one of those days when you thought your office was bugged? When you were absolutely positive somebody was listening in on your conversations?
For me, today is one of those days. Before the opening bell, I was chatting with my colleague, Laura Cadden. I told her of my dire outlook for Under Armour (NYSE:UA) and its overpriced and over-hyped product pipeline.
“You can’t say that,” she rebutted. “I love Under Armour.”
Because she is a Baltimore native – the home of Under Armour – it is easy to understand her affection for the company. But once I gave her a handful of figures and circled a few key spots on the stock’s chart, she tossed her emotions aside and agreed with my call.
That’s when it happened.
Shortly after sharing my opinion, in what I assumed was confidence, the news feed fires up and word hits the Street that Morgan Stanley downgraded Under Armour and cut its price target to just $12. The news comes just 24 hours after Caris made a similar announcement.
It was major blow, especially with shares closing yesterday at $18.73.
Tug-of-war investing
I came into the office this morning planning on recommending a short position on Under Armour to TFN Strategic Trader subscribers, but as soon as I read of today’s downgrade, I knew I was too late.
It would have been a perfect play as share price is down by more than 10%.
Just because I called off my plans for the day does not mean the opportunity is totally lost. Under Armour is a great company for trade-savvy investors. Its shares rise and fall in predictable patterns, creating multiple chances to rack up a hefty profit.
Even though analysts are calling for a $12 share price, it is not going to happen anytime soon. Investors simply love this company too much. Sure, the time-tested formulas and ratios will tell us this thing is way overpriced, but as long as the company has a trendy brand worn by the nation’s top “role models,” emotional investors will keep its shares propped up.
Give this stock a few days to dig into a price of about $16. When it does, start thinking about taking a bullish position. The play should give you an opportunity to rack up quick double-digit gains.
One word of caution, however. Do not get greedy and hold on to your position for too long. This stock does not stay near the top of its recent range for long.
This is an in-an-out trading strategy based on rational investors pulling the stock in one direction and emotional investors yanking it in the other.
Just as in any tug-of-war contest, one side will eventually fall flat on its face. Until they do, you can put some dough in your pocket as the side-to-side action continues.
The nation may love Under Armour, but Wall Street has a different opinion.
Next Article: Insiders buying big time at Stewart Enterprises (STEI)
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