When stocks pull back, the first instinct is to be cautious, if not fearful. With markets down significantly from their July highs and even down over the past month, fear is creeping up.
However, the market volatility index sits near 20. That’s a level that typically separates a minor and necessary pullback from a bigger crisis. Seasonally, it’s not yet time for a bigger market decline.
That means investors have a chance to buy into this pullback. And they should target great companies with strong earnings. Those are the firms that can rebound strongly in the coming weeks.
One company that’s had a steep pullback is Chipotle Mexican Grill (CMG). Since June, shares are down over 20%.
However, Chipotle has continued to remain a high growth play in the restaurant sector, with earnings up 33% in the past year alone. And they continue to see strong same-store sales, even as consumers have gotten more cautious about dining out.
Action to take: Chipotle shares look ready to break higher following their steep drop over the past few weeks. Investors can likely see low double-digit returns over the coming months from an oversold rebound.
For traders, the September 20 $60 calls, last trading for about $0.70, can see high double-digit returns depending on how high shares move over the rest of the summer.
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.