For the most part, the recent earnings season was a decent one. There was plenty of good news and strong earnings growth, but as is always the case there were plenty of companies that posted disappointing results that sent their shares lower.
While it is never a great idea to buy a stock on the heels of a major negative report, there are instances where the market overreacts to a bad report and shares fall into oversold territory. This creates attractive buying opportunities, but you have to do your homework to make sure there is a reasonable chance that the company can turn things around quickly, and the stock will start to erase some of its post-earnings losses.
The cardinal rule of investing is that you never want to catch a falling knife. It is very easy to see a big name stock take a big hit and instantly assume that it is a good chance to buy before the market comes back into the stock and drives the price higher. This will work sometimes, but more often than not when you see a stock take a big hit there is a reason for it, and it would be more prudent to sit on the sidelines and wait for things to turn around.
However, since there are cases where the market overreacts, it is smart to always take a closer look at stocks that take big hits and try to decide if you should roll the dice and take a shot. Let’s look at a handful of stocks that took hits following their earnings reports and discuss whether it would be OK to pick up a few shares at a discount to their pre-earnings price.