Investors don’t like uncertainty. They tend to give a company a lower valuation when its future outlook appears grim. That could occur for a variety of reasons, such as a series of poor earnings reports. Or there could be some kind of tax or legal overhang on shares.
Resolving those issues could benefit shares. Besides providing an immediate boost, it could also set up a stock for a longer-term move higher. Investors who buy after the uncertainty immediately disappears can still see great upside.
Grocery store chain Kroger (KR) reported that it’s paying $1.2 billion to settle is Opioid claims. While that’s a hefty price tag, it takes a bigger uncertainty off the table.
The news pushed shares higher on Friday, but there’s still more upside ahead. Share are still a little off their 52-week highs, and trade at just 10 times earnings.
Action to take: Kroger is becoming the industry leader in the grocery store space, and shares likely have more upside in the months ahead and beyond. Investors can also get a 2.6 percent dividend buying shares today.
For traders, shares are likely to move toward the higher end of their range in the months ahead. The January 2024 $50 calls, last going for about $1.60, could see mid-double-digit returns or better before expiration.
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.