Buy Industry Leaders on Bad News

Investors looking for market-beating gains can find them by buying and holding great companies over the long term. The trick is when to buy a great company. If a company is well run, leads its industry, and is profitable, getting a bargain is rare.

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  • But sometimes a share price might get knocked down a bit on some bad news. Even if it’s not a full-blown bear market, it could provide a short-term entry point for some quick profits on a turnaround.

    That could be the case with Visa (V). The credit card giant dropped last week, due to the technical issue of a possible exchange offer.

    Shares only dropped 2 percent on the news, and remain near all-time highs. It’s easy to see why.

    The leader in the credit card payment network space continues to grow, with revenues up 12 percent over the last year. And the company still has a fat 52 percent profit margin.

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  • Action to take: Investors may want to pick up shares now, with an eye towards a rebound in shares and a push to new all-time highs in the coming months. Visa also pays a 0.7 percent dividend while waiting for a rebound.

    For traders, the January $260 calls, last going for about $4.20, could see mid-double-digit gains. The calls also stand a good chance of moving in-the-money in the months ahead.


    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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