Markets are always bothered by something. That can lead to short-term opportunities that disappear when the fear does. That can include anything from a war to the current fears over how long the Fed will raise interest rates.
Looking at a long-term chart of the stock market, it’s clear that fears pass, even if they’re later replaced with new ones when stocks have moved higher. Today, investors may see better returns from companies that are playing to multiple fears.
For example, amid the current bear market, the US government has added chip restrictions to China. That’s led to an underperformance by Taiwan Semiconductor (TSM), a stock that’s already been hit harder than the rest of the industry given its geographical and geopolitical location right now.
The stock has lost 42 percent of its price in the last year, and now looks like a relative value. Shares are going for 11 times earnings, and those earnings are up 80 percent over the past year.
Action to take: The drop in shares looks like a relative value here, and one worth accumulating amid the current market fears. TSM also yields about 2.8 percent here, slightly on the higher end of yield for a tech stock.
The January 2024 $90 calls, last going for about $3.90, offer the potential for a big return on a surge in the share price at any time over the next 14 months. Traders who are patient can potentially buy the option even cheaper on a down day for the stock.
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.