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Stocks 203: Understanding the News

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1.
When astute investors see a particular news event influencing a stock's price to drop even though the company's fundamentals are still sound, what are they likely to consider doing?
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Buying the stock. In this case, if the fundamentals are strong, this is a classic buying opportunity.
2.
Hearing a negative event about a company that drives its stock price down but does not affect its fundamentals can be a welcome thing to many investors.
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True. If the fundamentals are strong, then this could be a buying opportunity.
3.
Why should you keep negative earnings surprises in context?
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All of the above. Estimates are just estimates, and they may not say much that is substantial about a company's underlying operations.
4.
The divisor used to calculate the Dow Jones Industrial Average _______.
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Has been shrinking steadily in recent years. The divisor used to calculate the Dow has been shrinking steadily in recent years to account for arbitrary events such as stock splits and changes in the composition of the roster.
5.
Which of the following would most likely affect a company's long-term investment outlook?
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The Securities and Exchange Commission is investigating the company to determine if it fraudulently misstated its financial results for the past several years. A slight earnings miss or analyst downgrade would not explicitly change a company's intrinsic value, and both events are very short-term focused. An SEC investigation into accounting could materially impact the investment outlook, however.