A great company is one that comes to dominate its market. Some industries may have an oligopoly, with a few big players dividing the space up somewhat evenly. Others may have one or two big players that dominate the market.
Either way, when there’s a bear market, these industry leaders will sell off with other stocks. And short-term hits to profitability can lead to enough fear to make for a compelling value moving forward, particularly for patient investors.
Such a case is unfolding with Alphabet (GOOG), parent company of Google. The company continues to dominate in the search engine space. Yet shares are dropping heavily as rising cost and advertising concerns weigh on the company in the short-term.
That’s helped the company lose about one-third of its price in the past year, even as revenues have dipped by only 6 percent. While earnings growth may slow in the next few quarters, the company is still profitable, and sports a solid 24 percent profit margin.
Action to take: Shares look worth accumulating for long-term investors. The company is such a big dominator that there are few reasonable alternatives for web advertising.
For traders, a rebound is likely in the coming months as inflation concerns fade. The September 2023 $120 calls, last going for about $3.80, can deliver high double-digit gains on a rebound in the stock at any time in the first three quarters of next 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.