Finding Value Stocks in an Overbought Market
Here's how I'm continuing to put money to work in several low price-to-earnings, value plays. Also, let's look at two winners this week.
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Equities finally did something yesterday that they had not done since last week’s election: They declined. Both the S&P 500 and the Nasdaq barely ended in the black, while the Dow fell by nearly 400 points. The Russell 2000 fell some 1.77% on the day. The bond market proved a major headwind to equities, with the yield on the 10-Year Treasury rising some 12-basis points. But I was happy to see that two of the decent-sized covered call holdings within my portfolio moved forward sharply on Tuesday, despite the downward tilt of the small cap index. It was a day of opportunity, if you know where to look.
Here are two stock updates and three moves from Tuesday:
Altimmune ALT: I bought this stock at the end of June after it sold off 15% following the unexpected death of its CEO. That has been a solid trade that got much better yesterday. The stock now rose nearly 30% after management provided encouraging updates about its developmental pipeline progress.
Schrödinger, Inc. SDGR: This was my weekend covered-call trade idea at the beginning of this month; it sprinted ahead 14% in trading Tuesday after announcing a new research and licensing agreement with drug giant Novartis NVS.
General Motors GM: I initiated a small position in this automaker on Tuesday using covered-call orders. I did so for many of same reasons I took a position recently in Ford F, which I highlighted during my column that ran Sunday. The stock is valued at less than six-times forward earnings, even with the recent rally in the shares. GM doesn’t have Ford’s big dividend, but seems in better shape as has emerged as the No. 2 EV seller in North America. This was one way I incrementally deployed some of my cash reserves into the market during yesterday’s decline. These trades have a low price-to-earnings/value theme to them.
Pfizer PFE: I also added a tad to this name. My original covered-call holding in this huge drugmaker is due to expire in-the-money next month. The stock has pulled back nearly 15% from recent highs in early October and now offers almost a 6.5% dividend yield. The stock trades for just over eight-times trailing earnings. The company has not made optimal acquisitions using its Covid vaccine lucre. But the company has recently drawn the ire of activist fund manager Starboard Value which took a $1 billion stake in Pfizer. Hopefully Starboard can drive positive changes at this underperforming drug maker.
APA Corporation APA: I initiated a small stake in this name, formerly known as Apache. This is a favorite value stock of Bill Nygren of Oakmark. It yields north of 4.5%. At under five times trailing earnings, a lot of bad news and headwinds from low energy prices are baked into the stock. We will get into much greater detail in this name on Sunday as I highlight it as my covered call trade of the week
At the time of publication, Jensen was long ALT, APA,F, GM, PFE and SDGR
