Buy Companies the Market Dislikes Ahead of a Year-End Rally

Investors have plenty of ways to play a seasonal rally for stocks. The past few weeks have seen stocks get hit hard to the downside, then surge higher. Highly volatile stocks have led the way in both directions.

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  • Going into the end of the year, companies that are disliked tend to perform best. That may be because they’ve gotten more oversold than other stocks, or are more prone to being squeezed higher. Either way, investors can buy disliked stocks for a stronger rally.

    One example is media giant Paramount (PARA). Shares just got a double downgrade as the company has been reticent to sell off its various media assets. However, at current prices, Paramount looks undervalued relative to its total assets.

    For instance, shares trade at less than half their book value and at just 10 times forward earnings. They would need to get a big premium on any asset sales to get a fair value, an the market may not want to deliver that right now.

    Meanwhile, while media stocks have been out of favor this year, earnings are up 28 percent and revenue is up 3 percent.

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  • Action to take: The market is undervaluing media companies like Paramount right now. Investors may want to buy now, with shares getting downgraded after already underperforming. At current prices, shares also pay a 1.5 percent dividend yield.

    For traders, the March 2024 $15 calls, last going for about $0.75, could see mid-to-high double-digit returns in the months ahead on a seasonal bounce higher and into the start of next year.


    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.

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