For Volatile Sectors, Look for Companies with Strong Cash Flows

Some sectors are secular, which offer a long-term growth trend. That’s where growth stocks such as those playing to the AI trend have seen great results this year. Other sectors are cyclical, leading to some years with great returns, followed by poor ones.

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  • However, knowing how to play the cycle can lead to great returns for those looking to buy and hold for a few months to a few years. Investing in beaten-down leaders with strong cash flows is the key.

    In the energy sector, oil prices have trended lower. That’s pushing all companies in the space lower, including industry leaders like ExxonMobil (XOM).

    Shares are now near a 52-week low. But the company continues to generate tremendous cash, which is uses to pay a 3.8 percent dividend yield. And at current prices, it’s looking to increase its share buyback program.

    Action to take: Exxon shares look attractive with oil back under $70. Investors may want to start buying shares here, and adding on any further drops. Exxon also has a history of increasing its dividend over time.

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  • For traders, shares are in a downtrend right now, but are starting to look oversold. The March 2024 $105 calls, last going for about $2.75, could see mid-double-digit returns on an oversold bounce higher for shares.


    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.