Buy Volatile Stocks When They Take a Dive

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Some stocks deliver slow and steady returns over time that can compound out into a phenomenal profit. Others can be volatile – but that volatility allows investors to earn even more over time, provided they don’t get scared out of a trade.

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  • Right now, a number of companies have been taking big hits following earnings. And while it’s scary, separating the companies likely to best rebound from this slowing economy will lead to big returns.

    Case in point? Amazon (AMZN). The retailing giant has expanded in a number of ways over the years. Last week’s earnings report caused the stock to dive thanks to slowing growth in the cloud space. But the company’s ups and downs – while big—tend to lead to great returns for those who have bought low and been patient.

    With shares down over 40 percent from their highs, and 34 percent over the past year, now may be a reasonably bug in opportunity. The stock is back to its June lows, and trades at its best valuation in terms of price to sales and EV/EBITDA in years.

    Action to take: Shares are a reasonable buy in the low $100 range. The stock may drop a bit lower in the coming weeks, giving investors plenty of time to patiently build up a stake.

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  • For traders, the stock may trade lower in the coming weeks, but may see an oversold bounce after that. The March 2023 $115 calls, last going for about $7.00, could offer mid-double-digit returns. Traders may also have a chance to buy the calls a bit more cheaply in the coming weeks.

     

    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.