Unintended Consequences… How Warren Buffett drives one stock higher - And he doesn't even own it!
Last week we talked about Ulta Beauty (ULTA) and how the stock was rallying on the news of Warren Buffett buying a big chunk.
Well, I think that news caused another stock to rally. Call it an unintended consequence.
More on that in a moment…
Politics and the stock market
Right now, we’re in the heart of the biggest political contest in the world.
Trump and Harris are battling it out for the top job as the President of the USA. (Thanks captain obvious - right!)
The news is a flutter as the Democratic National Convention is kicking off. This will go on for the next 4 days Thursday will be the big day with Harris giving her big speech.
Regardless of your policies - both candidates will say things about the economy that could have a major impact on the stock market. They might even move individual stocks too.
The big hot button issue this year is around inflation.
Harris just announced plans to prevent price gouging on food… and Trump said he’ll work to reign in energy costs. Both sound great from the political stump… but reality is different.
Problem is… we know politicians are liars (all of them).
We need to cut through the crap and really understand the difference between what a politician says… and what they’ll actually do.
Remember, while the President has a lot of power…
HOWEVER - they can’t create law without the help of congress. And trust me, wrangling the votes of 535 fellow Americans (The Congress and Senate) is like herding cats.
So, don’t get worked up over political speech… most of it’s crap anyway.
Now this is interesting…
Buffett can move stocks he doesn't even own…
Last week I mentioned Warren Buffett. If you remember, he’s sold over $77 billion in stocks and bought just $1.3 billion. Yes, that’s a lot of selling.
His big purchase over the last few months was Ulta Beauty (ULTA).
The stock skyrocketed on the news. While the stock is up, short term… the chart is still ugly.
ULTA is down 42% from its 52 week high… and down 32% form the start of the year.
Source Stockcharts.com
By the way, I asked for your opinion about Ulta… here’s what some of you said:
Steve M. replied to my email saying, “beauty sales are going to fall, because we’re about to enter a recession - I’m not buying this stock.”
Yet Brian S. said “Buffett is a genius, I’m buying whatever he does.”
Hit reply to the email I sent and let me know where you stand.
Now to the Unintended Consequences…
E.L.F. Beauty (ELF) stock is rallying on the news too.
Check out the chart over the last 10 days or so:
Source Stockcharts.com
10 days ago the company announced earnings… they crushed revenue growth and had strong financials… but Investors sold the stock on the news that the growth rate was slowing.
Remember they were not shrinking… just growing more slowly…
The stock fell over 30% from the highs set in late June and early July.
Then came the news that Buffett was buying ULTA shares… and we got a sympathy rally in ELF.
It goes to show, you really will never know what will cause a stock to rally.
That said - if you’re expecting the US Economy to slip into a mild recession this year… then you might not want to buy EITHER stock. Regardless of the great Warren Buffett buying ULTA.
The end of year sales and the holiday season could be rough - if the economy is weak.
Invest carefully my friends.