Investors have a variety of ways to beat the market. One way is to look for oversold companies moving higher. Such companies tend to perform better over shorter periods of time.
For stocks that can beat the market over a number of months to over a year, three criteria come into play. Such a stock needs to be cheap, hated by the market, and also trending higher. When those three criteria are met, big returns can follow.
Today, payment company PayPal (PYPL) meets those criteria.
The market doesn’t care for the stock, which is down 16 percent over the past year. But shares are in an uptrend over the past six months, up over 20 percent from their low.
That’s a good sign that a new bull market is underway and shares could trend higher.
There’s plenty of room to run, as shares trade at just 12 times forward earnings. Plus, PayPal grew earnings by 52 percent last year, revenues rose by 9 percent, and the company’s profit margin moved to 14 percent.
Improvements in any of those metrics could help push shares even higher.
Action to take: Investors may like PayPal now as a momentum play with shares moving higher.
For traders, the June $75 calls, last trading for about $1.95, could see high-double-digit returns on a further move higher in the coming months.
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.