Investor Knee-Jerk Reactions Create Buying Opportunities

Some investors are a nervous bunch. They’re always looking for a reason to sell off shares. They can be human, or simply algorithms looking for trading opportunities based on negative headlines.

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  • The latter may have recently prevailed, when a high-end semiconductor firm saw its shares drop 5 percent on a day. The reason? Some company insiders sold shares. Never mind that most tech executives are given shares for performance, and have many reasons to sell.

    The company? NXP Semiconductor (NXPI). Shares dropped off of all-time highs from the news that two company insiders sold nearly $30 million in stock.

    It’s easy to see why. Shares have been on fire, rising 77 percent in the past year.

    Shares trade at 22 times forward earnings, with revenue up 43 percent over the past year. Sales and profit margins are rising as well. And company insiders own just 0.4 percent of shares, so the recent insider sales shouldn’t be taken as a major fear for shares going forward.

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  • Action to take: NXP is a solid play for the semiconductor shortage impacting the economy right now. Investors can also pick up shares for a 1 percent dividend yield right now.

    While shares have had a strong performance over the past year, they’ve had a range-bound performance over the past six months. Investors may want to sell covered calls against their share right now, and traders may want to look at a strategy like a put sale to generate some income here.

    The October $200 puts currently go for about $3.85, a reasonable return for shares trading sideways in the next few 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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