Time to Buy Great Companies at a Decent Price

When the market is selling off, investors will often go to cash first and then wait for the all-clear. That can result in missing out on the start of the next rally.

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  • An alternative strategy is to buy great companies once they reach a good price. It doesn’t have to be the best price, as an industry leader can recover from a market selloff and move higher over time.

    With the markets fearful of a government shutdown, defense stocks have been trending lower. They’re likely to snap back higher once the shutdown ends.

    In the defense contractor space, General Dynamics (GD) looks fairly valued here. The stock is about 10 percent off its highs of the year, and shares go for about 15 times forward earnings, a slight discount to its historical average.

    Action to take: Investors may like shares here, given the possibility for a move higher in the coming weeks after the government shutdown ends. Plus, shares yield about 2.4 percent at current prices.

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  • For traders, a jump higher in the coming weeks plays well with a call option trade. The November 17 $240 calls, last going for about $0.65, could see mid-to-high double-digit gains in the next few weeks on any 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 of the companies mentioned in this article.