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E-motions: Vol. No. 1, Issue No. 18 Brought to you by California News Tech (OTC BB: CNTE)
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By: Tai Nicolopoulos E-Motions Writer 12/22/2005 |
Despite Praise for Boring Stocks, Courting a Wallflower is Not Always Profitable |
1. Emotions in Focus: Mere Exposure Can Make a Company Seem More Likeable
Lately in the press there has been a great deal of praise for "boring stocks".
When investors fear a bear market they starting looking for investments that are going to be less volatile, make for better long term holds, and perhaps even pay dividends. Indeed, some of these "boring stocks" may indeed have good fundamentals and thus make for smart holds. Nonetheless, the take away message in the news that any company out of the limelight is a strong buy can lead investors astray.
In a hurry to avoid high volatility, many analysts are indulging in an over simplification of the problem, and ignoring a basic principle of media psychology. First of all, regardless of whether or not a company receives large quantities of press, if investors are looking for a good longer term hold, they should consider a stock’s fundamentals and the health of the sector it is in. The importance of looking at fundamentals and sector growth can be even greater when a stock does not receive a lot of media attention. If such a stock experiences a difficult period it can be more difficult to regain investor confidence if it is not prominent in the public mind.
Furthermore, many experts in media psychology would disagree with the fundamental assumption that is it better to be boring than to get bad, volatile press. Esteemed emotions researcher Dr. Robert Zajonc is the pioneer of "mere exposure" theory, which states that people like what they find familiar. One way of explaining mere exposure is to consider human cognition; that which is easier to process is more likely to be something we have dealt with before, and thus it is less likely to be threatening or problematic. Zajonc’s studies showed that participants found abstract characters more pleasing and invented more positive meanings for them if they had seen the characters before. Further research has demonstrated that in some cases, even if the original context of a symbol or name is negative, when participants revisit the name later, they often forget the context. Instead, they base their new perceptions, now positive, on its familiarity. In other cases, familiarity with a name or source of information can even make participants find information more credible.
What mere exposure theory means for the practice of public relations is that in many cases, there is no such thing as bad press. Investors are more likely to like a company if it is frequently in the news, even if some of the stories are negative. Investors may even be more likely to trust press releases about a stock if its company has a larger media presence. While smart investors should certainly avoid basing their decisions entirely on their subconscious impressions from business news, it is still definitely important to understand how a company comes across to others in the media. Moreover, a well-established public image is an especially important factor to consider when buying a stock that is down and may be experiencing other problems. Ultimately, while it is often wise to avoid high volatility stocks, "boring" can still be bad.
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2. The Big Movers and Why
Last week two MediaSentiment Heads Up™ big movers demonstrated how “boring” is not always brilliant when it comes to investing strategies. On Thursday, Imperial Sugar Company (Nasdaq: IPSU) went down 4.0% after releasing a negative earnings report. The Sugar Land, Texas-based company experienced increased operations costs because of high energy prices this year. Despite the long history of the company and steady demand for sugar, the stock is not likely to rally back after this earnings release. There is not likely to be enough media coverage of the company to create investor interest in this potentially-valuable company.
In another example of why being a media wallflower does not always pay, Jacuzzi Brands, Inc. (NYSE: JJZ) went down 4.4% after releasing a negative earnings report on Monday. The company suffered last quarter from soft luxury bath and spa markets in the US, UK and Italy. Unlike higher-profile companies offering luxury brands, such as Moët Hennessey Louis Vuitton, Jacuzzi Brands, Inc. is unlikely to get the benefit of the spot light if consumers start spending more on luxury items in the future.
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3. How to Use the News
If you are trying to determine whether a “boring” stock is actually a solid long term hold, or just a depressed wallflower, take a good look at not only the health of the company’s sector and its fundamentals, but also its media coverage. If the fundamentals are strong, the stock’s sector is healthy, and MediaSentiment Trend™ shows consistently neutral sentiment, rather than wild fluctuations in sentiment, or consistently negative sentiment, a “boring” stock may indeed be a good buy. Conversely, if a stock’s fundamentals are not strong, sentiment is consistently, or a stock’s sector is depressed, the company’s low press volume may make it more difficult for the stock price to bounce back.
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4. Last Week in Media Sentiment
Recent correlations between MediaSentiment.com's thumbs-up / thumbs-down recommendations for Heads Up™ rated companies and subsequent day price highs and lows show a strong relationship. The correlation between ratings for MediaSentiment.com selected stocks and their highs and lows the next day is 80%. Therefore, this week, MediaSentiment™ gave an edge up to 80% to smart investors who used Heads Up™ recommendations to trade on intraday volatility!
Investors can take this MediaSentiment™ advantage to the next level by adding supply / demand indicators to Heads Up™ thumbs up / thumbs down recommendations, for up to 148% greater profits. Also, MediaSentiment™ subscribers can take advantage of MediaSentiment Trend™ to follow sentiment trends about individual companies, as well as E-motions™ to follow market-wide trends.
All figures reflect all MediaSentiment Heads Up™ recommendations for the week of December 12, 2005 through December 16, 2005, rating companies on the day of their quarterly earnings releases correlated with their stock highs, lows, closing prices and daily volumes for the subsequent day.
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