Niche Markets Can Lead to Great Returns Over Time

Companies exist in a competitive landscape. An idea that’s highly profitable tends to attract competition. But there’s also so much that the market can bear.

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  • That’s why new technologies tend to attract a number of startups that consolidate over time. The end result can be a few industries where just one company has a strong niche over that of competitors. That company tends to make good returns, but also has the market dominance to ward off new competitors.

    One such company is Timken (TKR). The manufacturer’s engineered components, such as ball bearings, make it an industry leader in a key product.

    Without tools like ball bearings, many machines would be unable to move and function. That gives the company a sizeable edge.

    Timken shares have been trending higher, but are still inexpensive at just 14 times forward earnings.

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  • Action to take: Momentum investors may like Timken shares here as they’re trending higher. Long-term investors may want to buy a starting stake now, and use any market downturn as an opportunity to add to that position.

    At current prices, Timken pays a 1.5% dividend.

    For traders, the June $90 calls, last trading for about $2.75, could see mid-to-high double-digit returns in the coming weeks on a continued uptrend for shares. Traders should look to take quick profits on any big one-day jump higher in shares.


    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 company mentioned in this article.

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