How to distinguish a red flag from a buy when a stock falls
Whether a big decline in a stock is a buying opportunity or a big red flag depends largely on the industry right now, Jim Cramer said Wednesday.
That was the case for Skyworks Solutions and PayPal, both of which saw shares fall on the back of disappointing earnings reports.
In theory, PayPal should have been the buying option for the two, Cramer said. The digital payments company actually posted top- and bottom-line beats, but only shared weaker-than-expected guidance for the current period.
It still fell because it “lives in the wrong neighborhood,” Cramer explained. “At one point PayPal was the darling of e-commerce. These days it looks more like a bank, and right now bank stocks are married.”
Meanwhile, Skyworks, a semiconductor company, was saved by its technical connections.
On the earnings call, Skyworks did not blame its biggest customer, Apple, for the losses. Instead, the company blamed Android and smaller Chinese phone makers. For Cramer, that was the secret ingredient that helped Skyworks outperform PayPal, because China appears poised for a robust comeback based on the earnings reports of other companies currently operating there.
Ultimately, it all comes down to the viability of a given industry, he explained.
“My advice is simple: Technology is exploding? Consider it as one [possible buying opportunity,]” Cramer said. “Financial garbage? Let’s just say take a hard pass.”
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