When a firm downgrades a stock after being one of the lead underwriters of the offering, you’re looking at about as clear a sell signal as you can find. That is what happened to Lumber Liquidators (LL) when Goldman Sachs downgraded the hardwood flooring retailer from a buy to a hold, saying that, after the stock’s recent run, LL’s share “trade at one of the highest multiples in [our] coverage universe.”

Even more disconcerting: a private equity company that invested in LL three years prior to the IPO has been selling millions of dollars worth of LL shares in the past few weeks, according to SEC filings.

Agria (GRO) could be an ideal setup for anyone wanting to try and make a quick and substantial profit on an undervalued company. To explain why, I want to get into the philosophy behind the trade. One of the safest and most profitable ways to make double digit percentage gains in a short period of time is to use what I call 'the Bogeyman Trade.' When a company is sold off in a panic to levels drastically off from what it is traditionally priced at, then you can profit immensely if the catalyst for the selloff is suddenly removed. This also applies if the catalyst never existed except in the imaginations of shorts and easily excitable longs.

I had learned this during the panic of last march. When Bear Stearns (BSC) went under suddenly, every broker was priced for Armageddon. Lehman Brothers (LEH) was called the next Bear Stearns. It suddenly became priced as if it could go under at any moment. The fear was already priced in so I decided to buy Lehman ahead of earnings. The next day the stock rallied 45% because earnings basically had to show bankruptcy to be worse then expected. A CNBC commentator, referring to Lehman's earnings report, said that it could just be the "bogeyman under the bed." What he meant was the fear was there, it was priced in, and once you look under the bed you realize there is nothing to be afraid of anymore.

Today's advice: Bear in mind that you will not often make money blindly following analyst upgrades and downgrades of individual stocks. When an analyst's firm is the investment banker for some of the very stocks he or she follows, there is a lot of pressure for the analyst to 'do right' by that customer by issuing at least a hold, if not a buy.

Second, some analysts also are required to have at least a certain number of buys, sells and holds among the stocks in the sector they cover. Even some analysts covering housing stocks back in January 2007, for example, had to recommend buy or hold for at least a few firms. Pity the housing-sector investors who actually followed these analysts advice – they're likely out quite a bit of money today.

I think Gencor (GENC) needs my dad. He was Director of Investor Relations for a Fortune 500 company and taught me a lot about how companies manage their stock and communicate with the investment community, whether it's an analyst for Goldman Sachs or an everyday investor like you and me. I once heard him say "never complain, never explain." I was 15 at the time and didn't quite understand it, now as I peruse the press release from Gencor it all makes sense.

There are some things you don't say in a press release. You don't want to sound angry and you don't want to sound defensive. Let me take a line from the first paragraph of Tuesday's press release:

One of the reason smallcaps can be so lucrative is that they receive very little media or analyst coverage. Unfortunately, it can also be why you can suffer horrific losses when you do not know the reasons behind the price movements in your stock.