Revenue Miss Creates Buying Opportunity in Economic Recovery Play

While earnings season has come in strong, a few misses have occurred. Within that group of stocks, some companies are likely to continue to struggle. Other firms, however, are demonstrating short-term issues that are likely to lead to higher prices in time.

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  • One such name in the latter category is American Express (AXP). Shares dropped on Friday as the company reported solid earnings with better-than-expected profits. The issue? The company’s revenues were a little on the low side.

    Overall, the company reported $9.1 billion in revenue versus $9.2 billion in expectations. And revenue is down 12 percent compared to the same quarter a year ago.

    Even with the drop, shares of AmEx are up nearly 77 percent over the past year, and the company managed to keep a 10 percent profit margin despite its slight drop in revenue and earnings in the past year. Looking ahead to a fully reopened economy, the company is likely to benefit from higher levels of consumer spending, particularly on items like vacation travel.

    Action to take: Investors may like shares here. The company pays a 1.2 percent dividend yield here. While not huge, the company does tend to grow it over time.

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  • Traders may want to bet on a strong rebound in the second half of the year. Shares have been rangebound in recent weeks, and the earnings drop may set up for a bigger move higher. The January 2022 $165 calls, with a bid/ask spread near $4.90, offer high-double to low-triple digit return potential should the company post stronger numbers in the next few quarters.

     

    Disclosure: The author of this article has no positions in the stock mentioned here, but may make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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