Investors are often prone to taking a current trend and extrapolating it out indefinitely. That means in a bull market, traders get overly aggressive. But in a bear market, traders look at the current trend and get overly pessimistic.
We’re seeing signs of an economic slowdown. But that slowdown is with the goal of getting inflation out of the economy. We still have a strong jobs market and consumer strength. That may lower, but it’s not going to end.
That means that companies that can play to economic activity should be attractive here, and have plenty of upside in time.
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One such company is PayPal (PYPL). The payment processing company is down nearly two-thirds in the past year. Last year’s highs may have been at a point of optimism, but shares are now at a point of pessimism. The company is still looking to grow at nearly 20 percent per year for the next few years, and the stock is now down to 21 times earnings.
Action to take: Shares look attractive for a market rebound here. The stock market may have another move down in the next few weeks, so investors may want to buy some shares now and save some cash to buy more later. At present, the stock doesn’t currently pay a dividend.
For traders, the January $115 calls are well-priced at about $5.00 per contract. As with buying shares, look to buy on a down day and potentially take some profits early on a major rally day for the stock.
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.