Another trading opportunity presents itself as a result of the mortgage fallout. Standard and Poor’s, owned by McGraw Hill, is dealing with dozens of lawsuits based upon inaccurate credit ratings issued prior to the mortgage market meltdown this last year. McGraw Hill’s stock should be selling higher, if the mortgage fallout lawsuits were not an issue. This situation is seen as a buying opportunity by some and justification for an unusually low stock valuation by other. Sounds like an excellent trading opportunity to us.
The many pending lawsuits against McGraw Hill have the flavor of lawsuits against big tobacco. They could go on for years and years. This mortgage fallout, credit rating, trading opportunity situation could make McGraw Hill’s stock fluctuation in value presenting the trading opportunity as a reinvigorated economy helps the company make more money driving up its stock price while progress in one or more credit rating, mortgage fallout lawsuits could periodically pull the rug out from under stock prices.
Things to watch with McGraw Hill would include the recently active bond market where McGraw Hill makes most of its money from its Standard and Poor’s unit. Also, the pending sell or close of McGraw Hill’s Business Week magazine presents a trading opportunity all by itself. As state budgets come back from the dead we will probably see more investment in education which means more textbooks. This is also a trading opportunity as McGraw Hill’s stock price should benefit from sales by its core book business.
The point of discussing McGraw Hill is not to promote their stock or warn you away from buying it. The point is to use this situation as a case study in how to recognize a trading opportunity based upon opposing factors that can drive a stock price in different directions. The mortgage fallout and credit rating issue is keeping the stock price down while other core business factors should be driving the stock price up. As will every trading opportunity one needs to keep in touch with the news of the company and the pertinent factors driving its stock price. Following the mortgage fallout, credit rating lawsuits, the sale or closure of Business Week, and the success of most of the company’s business segments will help you develop a trading strategy for this stock.
One might consider a long straddle option as the company is exposed to risk on one side and substantial reward on the other. Thus its stock price could well move substantially in either direction.
If there is early news in the credit rating, mortgage fallout lawsuits there could be a huge movement of the stock with high volume providing a scalping option. The point is to think through this trading opportunity and develop a trading strategy before McGraw Hill’s stock price breaks up, or down.
Credit rating worries will be with us for awhile as once bitten investors are twice shy. The mortgage fallout will take years and maybe decades to right itself leaving lost fortunes in its wake. The play out of this and other, similar, stories is what presents the active trader with a trading opportunity. You just need to do your homework and be ready.
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