While the market trends higher over time, some companies can be out of favor with the market. If they’re capable of finding ways to improve their business and profitability, they’ll likely have a catch-up rally.
Such rallies can beat the overall market returns handily over time. And they’re the kind of move that can be common in large, established companies that tend to otherwise perform as slow-moving investments. One way to find these opportunities is to follow activist investors.
For instance, right now activist investors are targeting Johnson Controls (JCI), a manufacturer of building security and HVAC technologies.
Despite trending higher the past few months, the stock is up about 10% over the last year, lagging the overall market. Shares aren’t overpriced at 19 times earnings, either.
But JCI has lagged due to its mixed earnings overall in the past year, and its lackluster 0.2% revenue growth during a time of economic expansion.
Action to take: An activist investor can cause the company to make positive changes that improve the business, even if that investor doesn’t win board seats or control of the company.
That could bode well for JCI in the months ahead. Plus, today’s buyers will also get a 2.1% dividend.
For traders, the July $75 call, last trading for about $0.95, could see mid-to-high double-digit returns from a further uptrend in shares.
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.