Buy When a Stock Drops From Missed Market Expectations

Earnings season can see some wild, and often counterintuitive, swings. A company can beat on earnings, but can still sell off. Or a company can miss, but provide forward guidance that causes shares to soar.

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  • Amid this earnings season shuffle, investors can often get an opportunity to buy a high-flying stock once it’s had some of the wind knocked out of it. By buying at a lower price, investors can get better returns moving forward.

    The latest such opportunity is in aerospace supplier Heico (HEI). The company beat on earnings, but expectations were so high going in that shares sold off.

    Given the steady state of the defense industry, that pullback may prove a buying opportunity.

    Heico has now posted both revenue and earnings growth of 28 and 24 percent over the past year. Such growth is likely to continue, given current geopolitical tensions that look unlikely to ease anytime soon.

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  • Action to take: Long-term investors may like shares at current prices or on any drop lower. Shares pay a modest 0.2 percent dividend, a bit lower than the bigger aerospace and defense stocks.

    For traders, shares are likely to trend higher from their current selloff. The November $180 calls, last going for about $1.30, could see high double-digit returns on a bounce higher in the coming weeks.


    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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