Markets tend to react quickly to news. However, markets don’t just react. They tend to overreact. When there’s good news, the price of a company can get pushed far higher than it should. And when bad news hits, shares tend to sell off more than they should.
Patient investors can use this to their advantage. They can buy when there’s bad news surrounding a company. And then take some profits when good news sends shares higher than they would otherwise go.
Right now, a management change at payment processing company Block (SQ), have pushed shares close to their 52-week low. Co-founder Jack Dorsey is stepping in, however, a move which could prove bullish for the company over time.
Block has been knocked down about 15 percent over the past year, lagging the 15 percent rally in the markets. However, revenues are up 26 percent, and the company is moving towards consistent profitability.
Action to take: Investors may like shares near their 52-week lows here. While the company doesn’t pay a dividend, a move to consistently profitable quarters could lead to a big rally for shares in the years ahead.
For traders, the January 2024 $60 calls, last going for about $2.35, could see high double-digit gains on a rebound in the coming months.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.