The reason I sometimes write about what I do in a particular moment regarding stocks is to offer an additional insight for anyone interested in the stock market as to things they may also want to consider as they dig in and learn.
It offers a real time example rather than necessarily gets into the rugged and sometimes confusing details that goes into explaining how things work, what things to look for and so on and so forth.
I sold my entire position in Texas Roadhouse (TXRH) today after it had a better-than-expected stellar earnings report, strong future guidance, and raised its dividend 11% from 55 cents per share to 61 cents per share.
So, why did I do that?
For one thing, Texas Roadhouse was a short-term position for me. I started buying in in July of 2023 and finished my buying in August of 2023. My average cost per share was $111.12.
When it comes to short term positions, I am looking for a 15% return. Generally, I will sell. However, I always think it is important to reevaluate my position when it reaches the return I am looking for. Sometimes I may get a signal to add more shares. Other times I get a signal to hold.
I got a signal to hold, and ultimately, just prior to the February 15th earnings call, my shares were already up 23%. I knew what the analysts were expecting, and nothing was signaling through trading activity that investors were expecting TXRH not to at least meet those expectations.
The stock remained relatively neutral.
Had I seen an indication of investors expecting a less than acceptable earnings report, I would have expected the shares to fall just before the call.
That did not happen. So, I decided to sit it out a little longer and see what the earnings call brought. Like I said, it turned out to be an excellent earnings report and shortly after the call, the stock began to rally in after-market trading and continued on into the morning's pre-market trading on the 16th.
By 9:30am CST, the stock had jumped another 10% and rose nearly $15 per share. I sold with a hefty gain of 34%.
Here's the thing. I do strongly believe that Texas Roadhouse has more upside, and its next earnings report should support more upward momentum. But when rallies like this happen, and you hit new 52-week highs as TXRH did, it is highly likely that there will be a pullback and a new support level established.
A support level is simply a level at which buyers will tend to enter into a position or add to it. It is a level that, generally speaking, a stock will tend not to drop below. On the flip side, resistance is a level in which buyers tend to avoid a stock.
TXRH broke resistance by a lot, and so, it leaves an investor in a bit of a stuck place. We don't know what the valuation really is at this point. From my perspective, that's a good time to get out and wait until I can better assess what the stock price should be.
Because I think Texas Roadhouse will continue to perform well, it is one of those short-term positions I may very likely consider entering into again. But I need to do more due diligence before I can make that determination.
I will be looking for at least another 15% return, and I won't necessarily enter into a short-term position I do not believe can deliver on that.
In a situation like this one, I was happy to take my profits and move on to the next position I am interested in. I did also solidify some of the gains and put them into two other positions—one a long-term one and the other a short-term one. Realty Income (O) and Kraft Heinz (KHC). I also intend to add shares to another long-term position, Walmart (WMT), after the 3 for 1 split later this month.
Jim Bauer currently holds shares in all stocks mentioned herein except for TXRH. This blog is for entertainment purposes only and not intended to be financial advice. It is important to do your own due diligence or seek the assistance of a professional before making any financial decisions. Like what I write about or the way I write about it? Follow me on Facebook or X to keep up with all the latest writings wherever I may write them.
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