The market has recovered nearly half of its losses from the bottom – and in just the span of a few short weeks. That may not mean we’re out of the woods yet. But investors looking for stocks that could have a large move from here need to look for a company with a catalyst.
That could be a new product or service, or simply a company that benefits from a macroeconomic trend like lower inflation rates.
Following these cyclical companies at the right time can make traders a fortune. Right now, homebuilders seem poised for further losses. However, if the Fed starts to pivot on interest rates later this year, that catalyst may cause shares to soar.
Analysts are likewise waiting for such a catalyst in companies like
Lennar (LEN). The homebuilder was downgraded to neutral. While housing supply and demand is out of balance, rising mortgage rates have cut back on homebuying activity.
Action to take: Investors should look at buying shares on a drop to the low $80 range in the coming months, as the lack of a short-term catalyst now may cause shares to drop. Once such a catalyst occurs, the stock could move higher quite quickly.
For traders, look to buy a position like the November $90 calls as we get closer to the Fed’s next meeting in September. If they raise rates lower than expected, we may see the option take off. Right now, the option is trading for about $6.20, but could drop significantly before then.
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.
