How Not To Get Beaten By BUD: They Killed The Bud Light Brand, But They Can Still Sink Shorts

Benzinga - by David Pinsen, Benzinga Contributor.

Bud Light's Brand Revival Backfires... As we mentioned in our last post, Bud Light's latest attempt to revive its brand has backfired.

Bud Light's Latest Attempt To Revive Its Brand Backfires But $BUD is nevertheless up in the pre-market on mixed earnings, reaffirmed guidance, and a buyback announcement.https://t.co/lLqP8A22Gq

— Portfolio Armor (@PortfolioArmor) October 31, 2023

That prompted us to review our process to see if we might have avoided making this trade. It turns out that we could have, by doing a better job of assessing the metrics we already use when making earnings trades. We also decided to add a new metric, to deal with valuation.

Below is a look at our new process, and how it would have kept us from betting against BUD this week.

Adding A New Metric Up until now, we had been looking at eight different metrics for earnings trades:

• LikeFolio’s earnings score based on social data. The higher the number, the more bullish, the lower (more negative) the number, the more bearish.
• Portfolio Armor’s gauge of options market sentiment.
• Chartmill’s Setup rating. On a scale of 0-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.
• Zacks Earnings ESP (Expected Surprise Prediction). This is a ratio of the most accurate analyst’s earnings estimate versus the consensus estimate.
• The Piotroski F-Score. A measure of financial strength on a scale from 0-9, with 9 being best.
• Recent insider transactions.
• RSI (Relative Strength Index). A technical measure of whether a stock is overbought or oversold. We’re looking for RSI levels below 70 for bullish trades and above 30 for bearish ones.
• Short Interest (noted when 10% or higher).

Quantifying Our Disparate Metrics So now we have nine different metrics to look at, which we’re gathering from six different sites, and we have dozens of companies reporting per day in some cases (the graphic below just shows the “most anticipated” earnings releases).

How to boil all this info down? Look at each metric for each stock, and assign a value to it based on how bullish or bearish it is. Take the Chartmill Valuation Rating, for example. If a stock gets a 5, we’ll give that a 0 value (neutral). If it gets 6 or higher, we’ll give it a 1 to indicate that the indicator is bullish. If it gets a 4 or lower, we’ll give it a -1. If it gets a 10 or a 0, we can give it a 2 or a -2, respectively. Then we add those numbers up for all the metrics and come up with a composite score.

Applying This To BUD Before Earnings Here’s how BUD looked on our nine metrics ahead of its earnings release:

• Social data: -27.
• PA Options sentiment: Neutral.
• Setup rating: 6
• Valuation rating: 5
• Zacks ESP: -1.45%
• F-Score: 6
• Recent insider transaction(s): None in the last 12 months
• RSI: 40
• Short interest: 0.42%

So, based on all of that, we would have been neutral on BUD and not placed a bullish or bearish bet on it (instead of what we did do, which was place a bearish bet on BUD that’s currently under water).

We will be applying that approach to the trades we place later today. If you'd like a heads up when we place them, feel free to subscribe to our trading Substack/occasional email list below.

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