For Big Returns, Look for Smaller Players Profiting from an Industry Boom

When an industry is growing, investors may tend to go for the company that can boast the largest growth, or is simply the biggest player.

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  • That provides the perceived safety of a well-known name that other investors know about, as well as the best liquidity for getting out of a trade. However, that leaves investors with opportunities to profit from companies that may not be as large or well known, but can still post a massive profit.

    In the defense industry, the space has consolidated significantly over the past few decades. But there’s still room for further consolidation. Until then, smaller companies can benefit from the boom in global defense spending.

    One such company is defense contractor Mercury Systems (MRCY). The company provides specialized electronics for aerospace and defense contracts, but has struggled a bit this year. That’s pushed shares down 17 percent.

    Shares now look attractive relative to other players in the industry. And with a market cap under $3 billion, the company could easily get bought up by one of the larger players in the industry.

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  • Action to take: Mercury shares have been trending higher since hitting a 52-week low in June. With the stock in an uptrend, today’s buyers can likely see the stock move higher, and likely back to its old all-time high.

    For traders, the January 2024 $40 calls, last going for about $2.50, could see mid-to-high double-digit returns in the coming months on a further trend higher 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.

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