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Liquor Stores N.A. is proof you need to treat your stocks like a puppy Add to ...

Hello Lou,

Is there a reason for the recent slide of Liquor Stores stock?

Thank you for any insight you may offer.

Olena

Hey Olena,

Thanks for the assignment. The last time I ran the charts for Liquor Stores N.A. Ltd was on July 9, 2012. Mario was looking for a conservative dividend play when the shares were trading for $18.76. It was noted that the company was a small cap stock with geographic concentration which by definition introduced a certain level of investment risk.

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It was also mentioned that when I teach Introduction to Finance to first year students at Sheridan College that I direct them to treat their stocks like a puppy. You have to watch and interact with your stocks every day just like a puppy. Central to that interaction is following the data and news streams that keep you informed of the internal and external events that could lift or sink the value of your investment.

The research that I have conducted on your behalf indicates that there were two events that contributed to the selling that has come into the stock in the last month. The first was an external matter that had consequences for the company’s operations in the state of Kentucky where they have 11 stores out of a total of 242 that they operate. The state law prohibiting the sale of wine and spirits in grocery stores and gas stations has been challenged and that could change the landscape for operators in that jurisdiction. In the case of LIQ the immediate consequence is muted but it would change their growth profile for the state.

Of greater consequence to the trading value of the stock was the sudden resignation of president and CEO, Rick Cook, on Aug. 30, 2012. The press release was terse at best, which will usually get investors hitting the sell button as a reaction to unexpected changes.

A review of the charts will provide further evidence to help you manage your investment.

The three-year chart illustrates the 8.5 per cent increase in the stock from the date of the last post as LIQ hit a 52-week high of $20.36 on July 23, 2012. What is also evident is that $20.00 formed a level of resistance that the shares could not overcome which in concert with the sell signals generated by the MACD and RSI led investors who knew what to look for to book their profits while they were available.

The six-month chart depicts the aggressive selling that came in at the end of August on the announcement of the resignation of Rick Crook. The retreat took the stock below its 50-day moving average. Currently the MACD and RSI are indicating that the lift that started in mid-September could be coming to an end. What is evident is that the uptrend that started in October of 2011 when the shares traded at a 52-week low of $11.28 has been broken.

The case study of LIQ confirms that if you are going to own stocks you have to interact with your puppy every day to make sure it’s getting the attention it so richly deserves.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

 
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