There are many ways that a company’s stock can rise over time. Its earnings can grow over time, indicating a more valuable company. Or the multiple that investors are willing to pay for a company can rise as well.
In today’s economic uncertainty, companies that can grab increased market share are capable seeing their multiples rise over time. And chances are when the economy recovers, so too will earnings and profit margins.
One company that’s faring well on the market share front is Advanced Micro Devices (AMD). The tough market for chipmakers has hit all players. AMD reported a 98 percent drop in its quarterly net profit. Yet shares surged as the company is looking to gain market share in data centers and other processors.
Shares are well off of their 52-week lows, but are still down 40 percent over the past year. That suggests a reasonable long-term return for investors who add shares today.
Action to take: Shares are a buy under $90, where the stock’s valuation is reasonable for today’s market. While the stock doesn’t pay a dividend, AMD is looking to increase its market share substantially during the next chip boom over the next few years.
For short-term traders, the stock is trending up. The next few days may give a bit of a pullback, which would lead to a solid entry point for the June $90 calls. Last going for about $7.50, patient traders can likely get in at $6.50 or under in the coming days and ride the longer-term trend higher for mid-to-high double-digit returns.
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.