In a Rallying Market, Look for Bargains that Haven’t Broken Higher Yet

Market sentiment has reversed in the past month, from extreme fear to extreme greed. Some companies are making new all-time highs. But not all stocks have gone along for the ride yet.

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  • Over time, that can change. Buying companies that haven’t rallied yet can lead to better returns when the runaway market rally trades slow down. And the returns can be even better with companies posting strong earnings.

    Case in point? Deere & Company (DE). The agricultural equipment manufacturer beat on earnings, but sold off slightly as the company often takes a cautious approach with its future guidance.

    As a result, shares trade closer to their 52-week low than their 52-week high. And at 12 times forward earnings, are underpriced relative to earnings growth of nearly 60 percent.

    While farming isn’t a growth industry, it is a defensive one, which may hold up well if faster-growing parts of the market slow down in 2024.

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  • Action to take: Investors may like shares here. The drop in price has pushed the dividend yield up to 1.4 percent. While not huge, Deere has been good about raising that payout over time.

    For traders, the March 2024 $430 calls, last going for about $4.05, could see mid-to-high double-digit gains, depending on how strongly shares trend higher in the months ahead.

    If shares have a strong holiday season, traders may want to take quicker profits.


    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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