What It Takes for a Stock to Rise

It takes a lot for a stock to go up in value. Everything has to come together at the same time. For a stock to really move, you need to have institutional players taking on new positions. For the most part, if this is going to happen, the story has to be known, have attractive numbers and often, most importantly, it has to be saleable.

By this I mean the story has to be just that — a good story. This means that the fundamental economic landscape has to lend credence to it. It also means that there has to be enough liquidity available to make it worth investors’ while.

By saleable, I mean that the investing marketplace has to think that it’s a good idea to invest in this company at this particular time. Mastering the market’s investing psychology is absolutely critical to being successful at speculating in stocks. I often think it’s more important than the fundamental numbers themselves.

One particular story that stands out now as a major success for stockholders is Titan Machinery, Inc. (NASDAQ/TITN). I first wrote about this company in this column in the middle of April.

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A lot of equity investors have come around to the idea that there’s money to be made speculating on the back of strong agricultural commodity prices. Titan Machinery is a business that uses a common model as an industry consolidator in the tractor and heavy equipment industry. As it adds more dealerships to its network, it can wholesale-purchase more equipment at better prices. Take a drive in the countryside and you’ll notice a lot of really fancy, expensive new tractors in the fields. To be frank, the machinery business is booming. And, not only does a dealership make money selling a tractor, but also the increasingly complicated parts and the service for that tractor are both expensive and profitable.

Titan Machinery just reported excellent first-quarter financial results that beat Street expectations. The company raised its earnings forecast for the year, and the stock popped higher by three points on the news. The stock is now up a full 10 points since April.

Like I was describing above, it takes a lot of factors to come together for an equity security to generate significant capital appreciation on the market. When it happens, however, it sure is sweet.