Use Market Pullbacks to Buy Quality at a Reasonable Price

After its 10th longest winning streak in history, the stock market has finally pulled back. The S&P 500 sank to the 50-day moving average, a sign that the uptrend may be over. However, the market often has small pullbacks of this nature.

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  • These pullbacks cause investors to unwind leveraged positions, take profits, and look for new buying opportunities. Pullbacks are healthy, and typically happen a few times per year.

    With the recent pullback occurring at the start of earnings season, there may be some new buying opportunities.

    Companies that miss on earnings during a market pullback are often punished more than they need to be, akin to being in the wrong place at the wrong time.

    One such company that took a hit is The Travelers Companies (TRV). The property and casualty insurance giant reported earnings and revenues slightly below expectations, leading to a big drop in share price.

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  • Shares are now up 15% over the past year, slightly lagging the overall market. And despite the earnings miss, those earnings are up nearly 98% over the last 12 months.

    Action to take: Long-term investors may want to buy a starting position here, with an eye towards adding to that stake on any further drop. At current prices, Travelers pays a 1.8% dividend.

    For traders, the July $220 calls, last trading for about $3.25, could see mid-double-digit returns on a post-earnings rebound in the coming weeks.


    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 company mentioned in this article.

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