Wall Street analysts tend to be quick to upgrade stocks that are rallying, and quick to downgrade a stock after it’s fallen. Traders who take the opposite tack tend to cash out during a rally, and tend to end up buying in when shares are at a bargain price.
With many companies already down heavily, it’s no surprise that downgrades continue to trickle in, even though the worst may have passed for the stock market for some time.
Case in point? Nvidia (NVDA). The world’s leading graphics processing company has recently been downgraded, adding to the drop of the prior four trading days. With a 19 percent drop in the span of a 5-day trading period, however, shares look more oversold than worth selling right now.
Earnings are up 107 percent over the past year, revenue has surged 53 percent, and the company enjoys a 36 percent profit margin. There’s no sign of a significant slowdown at the company, although the global economy may weigh on shares over the short term.
Action to take: The company is an industry leader and big growth player. It’s now also down over one-third from its 52-week high. That’s enough of a drop to consider adding to shares here, and taking profits when the company is once again at record highs and getting analyst upgrades.
For traders, the July $250 calls look attractive for a rebound trade. Last going for about $12.30, the option can deliver mid-double-digit returns on a strong move higher in shares.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.