Invest With Companies Facing Specific, Yet Solvable, Fears

The market’s bearishness is reflected in the tendency to sell shares of a company first, and ask questions later… if at all. However, many companies selling off right now are still fine operationally. A few may even benefit from the current slowing economy, as competitors change their business or even go bankrupt.

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  • That makes this a stockpicker’s market. And the way to profit from that is to find companies that have been hit hard from specific fears that can abate in time.

    A case could be made for payment company Block (SQ). Shares took a 15 percent dive last week on news of a hedge fund going short the company. Typically, a short-seller will build a short position and then talk up their book, to drive prices down further.

    While the short seller is alleging that the company has inflated user metrics, Block has already started to counter the research that went into the report.

    Block shares are down about 46 percent over the past year, and have struggled in this slowing economy already. The payment processing company hasn’t been profitable, but revenues are up 14 percent.

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  • Action to take: Shares are likely oversold here, and due for a short-term move higher. On a longer-term basis, the company’s continued growth and move to profitability could increase the value of shares substantially over time.

    For traders, the June $75 shares, last going for about $390, can deliver mid-to-high double-digit returns on a rebound in the coming weeks.


    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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