It pays to do homework on stocks
Researching your picks and making an informed play off the news will give you a competitive advantage. Just look at Allergan.
By Jim Cramer, TheStreet
The other day, while I was speaking and signing books at the 92nd Street Y, someone asked me what I thought of the "perfect market theory," that everything is pretty much known about stocks simultaneously and no one can get an edge.
I laughed. I said give me a break. It's wrong EVERY DAY.
Monday was no different. Consider the biggest gainer, Allergan (AGN), which rose 5.5% on its approval of Botox for migraines. When the approval news came out after the bell on Friday, I was confident of two things: (1) The "in the know" people would know this is no surprise and (2) the "out of the know" people would think it was revelatory and take the stock up much higher.
Both came true. Both are antithetical to the perfect-market thesis dreamed up by professors who have never traded and are smoke-and-mirror artists.
Here's the deal. Not that long ago, I had David Pyott, the CEO of Allergan, on "Mad Money," and he assured the audience that Botox would soon be approved for migraine use. He made it clear that because it is used with such success in Europe, because there is nothing else available for serious migraines, because there is a premium on anything that cuts the number of days down, you are going to get a rapid FDA nod.
At the same time, he said, it would make a huge impact on earnings -- so huge that they called it "El Grande" within the company. I wrote and talked about El Grande endlessly since then because I knew that numbers 1 and 2 would both come into play.
Sure enough, the news comes out and the market acts like it is a big surprise -- even though the CEO made the market opportunity and the time frame of approval very clear just a couple of months ago.
The next time someone says that this whole homework/edge business is nonsense, remember Allergan and Botox. Not only is news not discounted equally, but playing the news is still one of the most lucrative games in town.
At the time of publication, Cramer had no positions in the stocks mentioned.
Click here to follow Cramer's Charitable Trust trades.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Do it once a year. This allows the best-performing asset classes to take off and run.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.