Buy Industry Leaders When They’re Hated by the Market

While most stocks have pulled back in the past month, they still look strong relative to last year’s lows. However, some companies have specific issues at play that are keeping them from being near their highs.

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  • Understanding why a company can be out of favor with the market can lead to a great investment opportunity, if bought at the right time. Companies facing temporary legal problems, for instance, could be solid winners when they rebound.

    That could be the case with 3M (MMM). The conglomerate has had legal woes from a number of old products, but is starting to make some progress on clarity there, and new legal issues are smaller in scope.

    In the meantime, the fears have pushed shares to a five-year low, and they’re down nearly 25 percent over the past year.

    However, with shares now going for less than 12 times earnings, the manufacturer looks oversold and ready to move higher, especially on any good news on the legal front.

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  • Action to take: Long-term investors may want to consider starting a stake here and adding on any further move lower. The company has maintained its dividend, and shares currently yield 6.1 percent. That yield will drop if the company’s legal issues improve and the share price jumps higher.

    For traders, with shares looking oversold, the November $110 calls look interesting here. Last going for about $1.50, they could see high-double-digit gains in the coming months.


    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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