This Cyclical Market Will Come Roaring Back with the Rest of the Economy

Some companies are slow and steady, like utility and telecom companies. But many, if not most, are cyclical. They tend to move higher with the economy, and lower when the economy slows. That can include everything from cars to entertainment services.

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  • It can also include many business service companies as well. One of the first things a company will cut back on during a slowdown is advertising. Over the long term, that may cost market share and customers.

    One company seeing a hit from uncertainty in the advertising market is Roku (ROKU). The TV streaming platform just sank by nearly 25 percent after reporting poor earnings and pointing out the uncertainty in the markets right now.

    But some investors are seeing a value here, given the company’s global reach. It may also help that the company is down 85 percent in the past year, and is now looking reasonable by some valuation standards like price to sales and price to book.

    Action to take: The stock is being priced as though it’s going out of business right now, even as revenues were up nearly 20 percent in the past year and the net loss was less than $50 million. That makes shares look like a contrarian buy now. As a growth play, shares do not pay a dividend.

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  • For traders, the January $110 calls, last going for about $4.30, offer mid-to-high double-digit return potential from here. Traders should look to scale in by adding to a position on down days, and using any big rally in shares to take some profits.

     

    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.