In a bull market, great companies will rise… but so will ones that aren’t the leaders of their sector. When markets are in turmoil, it’s industry leaders that will likely perform best, even if they’re suffering from a drop in earnings.
That can be seen with the most recent earnings season. Many companies across the board were down. But those that are leading in their industry have been faring relatively better.
Case in point? Semiconductor company Nvidia (NVDA). The company reported revenue below expectations last week, and shares sold off after hours. But they rallied the next day anyway. The company is ahead of competitors, particularly in the graphics processing space. And that industry lead is unlikely to weaken anytime soon.
Following the latest earnings report, shares are up about 10 percent over the past year, still outperforming the overall stock market by about 15 percent. And the company has a 36 percent profit margin, a huge sign of its domination in the niche part of the semiconductor market it operates in.
Action to take: Shares are looking oversold in the short-term, and look poised to move a bit higher from here. And in time, they’ll likely make new highs. The stock only pays a 0.1 percent dividend right now, but in the years ahead that could likely increase.
For traders, the September $200 calls, last going for about $13.50, could offer mid-double-digit returns in the coming months, if not better, on a further rally 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.