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Trading on company results and bid rumours: What to look out for

Zak Mir
(Leon Neal/Getty Images)
(Leon Neal/Getty Images)

Yesterday, iRobot, the company that makes the robotic vacuum cleaner, Roomba, its results after the main session close in the US. The shares rallied over 20%. This would clearly have been a nice little earner for those on the back of the announcement.

Sports Direct: The Pub Deal

Alas, the situation was somewhat binary given the way that iRobot has been in the sights of bear traders who suggest it may have travelled too far on the upside. They lost the battle for now, but could of course still win the war.

A comparable situation in the UK was the recent update from Sports Direct, where given the uncertainties with regard to the court case that Mike Ashley has actually just won after his “ pub deals”, the shares were very much depressed below 300p.

MORE: ‘Power drinker’ Mike Ashley wins court battle over £15m business deal made in pub

This was ironically, the exact level at which they were floated on the stock market in 2007, so a real rock bottom valuation. Brave souls may have decided to go for the stock as a value play.

However, the real kicker was provided as if often the case, by the man himself on the occasion of the company results. Ashley announced a new CFO, Jon Kempster, a man who is regarded as a very safe pair of hands. The shares have since rocketed to well above 350p. Indeed, one could have bought on the day of the announcement when the stock was only up 2% – well below 310p, on the basis of the positive surprise revelation.

Sports Direct’s share price has rallied over the last week or so (Yahoo Finance UK)
Sports Direct’s share price has rallied over the last week or so (Yahoo Finance UK)

All of this goes to show that firstly you have to be on your toes when trading stocks around the time of company results, and second that there can be decent rewards if you are prepared for the risks.

BT’s kitchen sink

I will conclude with a couple of situations worth looking out for over the next week. The first is BT Group which has been battered in recent months by both the £500m Italian scandal, and the loss of Openreach, a key legacy of the firm’s former market dominance.

MORE: Amazon primed for Macy’s? Whole Foods is just the start of Bezos’s plan for market domination

While the immediate reaction to what the company may say on Friday 28 July could be something of a coin toss, there a couple of things we can be reasonably sure of. First, the company is likely to want to “kitchen sink” its recent woes, making provisions for any losses or mishaps.

The second is that in the recent past we have seen 280p – 290p come in as solid support for the stock. Indeed, the stock does not seem to like to be below 300p for long. Provided there are no new negative surprises one would be looking for the shares to stabilise below 300p for the long haul.

Worldpay: The return of the FTSE 100 bid stock

Of course, one of the more exciting and interesting parts of investing in the stock market is attempting to bag the next M&A story. After something of a drought, earlier this month we were treated to a takeover for a FTSE 100 company in the form of Worldpay. Indeed, ITV which reported on Wednesday, has been a perennial bid target as well.

But the one to watch in the run up to its results next week is arguably Shire Pharmaceuticals. Second quarter results are due on 3 August, and the shares are rebounding from the low end of the range ahead of this. A resistance line at 4,250p has been broken today, with the charting message being that while above this we could see the stock retest the main 5,000p resistance zone for 2017.

Undervalued Shire Pharma

Shire is one of the most undervalued and cash generative drugs companies around, strong enough to make a $30bn offer for Baxalta a couple of years ago. M&A speculation either for the company as a bidder or the stock to be bid for is never likely to be far away. Rumours are apparently starting to swirl again.

Zak Mir is editor at and author of 101 Charts For Trading Success and 49 Golden Rules of Technical Analysis. He is generally acknowledged as being one of the most experienced independent technical analysts in the UK.