As the market goes, so do most individual stocks. That’s especially true for early-stage companies or new combinations with a limited market history.
A bull market can mean a new company will tend to be valued highly, likely even higher than it’s worth. But a bear market can mean a new stock will likely be undervalued until it can prove its mettle (or until the market changes to bullish again).
One new name on the market now is Warner Brothers Discovery (WBD). The merger of media assets from AT&T (T) and Discovery Networks (DISCA), it’s a new stock trading at a discount to other names in the streaming space in its first few weeks of operation.
In the months leading up to the spinoff, the decline in AT&T and markets in general led to a valuation of about 16 times earnings, and just under 10 times earnings for the new media company.
Action to take: Investors may like shares of WBD here, given the valuation. While the stock isn’t paying a dividend at present, most other streaming companies aren’t either, but this could be one of the first to do so.
Traders might want to consider the October $25 calls. Last going for about $3.60, it’s an at-the-money option with the potential to turn into a high-double or low-triple digit move higher before expiration in the coming months.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.