Bear markets tend to occur every few years. And they include a selloff in all assets – whether of high quality or poor. It’s unusual for blue-chip names to take such a big hit in the span of a year without a strong recovery in the next year.
Yet that’s where investors are today. Buying quality names on the cheap can lead to large returns in the years ahead, especially if the market is close to bottoming ahead of a recovery rally.
One place to invest now is in asset managers. They’re a cyclical financial company that tends to get hit with declining earnings and revenue in a bear market, plus the additional pain of declining asset values.
Yet when markets get bullish again, that trend reverses. And that can lead to big gains for patient investors during bear markets.
BlackRock (BLK), arguably the industry-leading asset manager, hit a 52-week low last Thursday. The move came as the company beat on earnings estimates, but saw assets under management drop 16 percent.
Action to take: With shares down 40 percent in the past year, the stock now appears oversold. Today’s investors can get a 3.7 percent dividend, which the company has been growing in recent years.
For traders, shares aren’t cheap. But the April 2023 $700 calls, last going for about $18.00, could be well positioned for an asset rally at the start of next year that brings shares higher.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.
