The stock market has quickly retraced nearly half of its recent losses over the past few months. While some might see that as the start of a new bull market, others see the pattern of a bear market rally playing out.
To trade these kinds of markets, investors can focus on dividend paying stocks, or on stocks that operate in defensive industries that hold up even when the economy remains slow.
In this current economy, auto parts suppliers and retailers have held up somewhat well. The combination of supply chain issues impacting new car production and demand for cars has been a boon for the industry.
But not all companies have been along for the ride. Standard Motor Products (SMP) remains close to a 52-week low following worse-than-expected earnings estimates.
However, the company has steadily grown its earnings since 2018, and the recent drop has taken shares to 10 times earnings.
Action to take: Besides trading at a discount to both the market and its peers, the company recently started a dividend, with an initial yield of 2.3 percent at current prices. Investors can likely see a combination of a higher payout and higher share prices as earnings continue to rise.
For traders, the November $45 calls, last going for about $2.30, offer traders a mid-to-high double-digit returns on a rebound 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 of the companies mentioned in this article.