In a bear market, good stocks will be thrown out with bad. And high growth names will be heavily discounted, while even those that can continue to grow will also face a downturn, even if things are going well.
Investors can use bear markets to buy both growth names and value names at a relative discount to where they’ll trade once the next bull market is underway.
Investors looking for bargains now could find one in Watsco (WSO). The company is a leader in HVAC, selling in both stores and to contractors various AC units, parts, and refrigerants. That’s a steady business, even if the economy is in rough shape.
Shares have been impacted with the recent market selloff, and are down about 15 percent in the past year. That’s a steep contrast to the company’s 106 percent rise in earnings and 34 percent rise in revenue.
Action to take: Shares have gone from 37 times earnings to under 19 times earnings, making for a reasonable valuation here. The company has been a dividend growth play, with a starting yield here of 3.6 percent and room for future growth.
Traders might like the February $280 calls. Last going for about $9.70, they offer high double-digit returns on a rebound in shares in the latter half of the year.
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.