These Market Underperformers Stand to Outperform on the Next Rally

Financial stocks tend to be sensitive and even leveraged to changes in the economy. That’s been the case with a number of financial stocks so far this year. One niche in this space that has been hit the hardest has been in asset managers.

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  • These companies have been declining from the one-two punch of a slowing economy, and a decline in asset values as well. These stocks are now down about twice as much as the S&P 500 index.

    On an economic rebound, however, they stand to be big winners. While it may not be time to go all-in yet, buyers who start adding to these companies in the coming months, can likely build a strong position.

    Among asset managers, the leading player is arguably BlackRock (BLK). The company is now trading at 15 times earnings, and has gone from trading at nearly 3.8 times book value to under 2.6 times book value.

    Action to take: Shares are wroth accumulating under $600, close to their recent price. The stock yields about 3.2 percent at current levels, just over its historic dividend payout of 2.8 percent.

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  • For traders, look for a down day to buy call options, such as the January $680 calls. Last going for about $33, the option can likely deliver a low-double-digit gain on a rally in shares within a few trading days.

     

    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.

     

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