Market Report: Three Companies to Buy on Dips
Perhaps it’s an understatement, but August of 2007 has been a very unique trading month.
Past Augusts have been prone to lazy, low-volume trading days -- also referred to as the “summer doldrums.” But this year, August has been anything but boring.
In fact, it’s only midweek and we’ve already seen some rather volatile moves in the major market averages highlighted by yesterday’s 280-point sell-off on the Dow. So the big trading question as we lead into September is, “What is the best way to play the volatility?”
The simple answer is to isolate the very best companies - and use any short-term sell-offs to buy these names for discounted prices.
I have a long list of such stocks that I play in my Bottarelli Research trading service, but for today’s Market Report, I’d like to highlight three such companies that Adam and I are actively playing in WaveStrength Options Weekly. They are Northrop Grumman (NOC:NYSE), Raytheon (RTN:NYSE) and United Technologies (UTX:NYSE).
As you can probably tell, all three stocks are defense companies, and if you look at the November call positions that we’re holding in WOW, you’ll see maximum gains of 33%, 184% and 45% on these three positions, respectively.
The biggest gain has been the 184% we’ve seen on Raytheon, which many investors seem puzzled by. After all, since we’re headed into an election that will feature no incumbent, many investors feel nervousness over the outlook for U.S. Defense spending -- or a possible pullout of our troops in Iraq. It’s a common perception that Democratic leadership will dramatically alter our defense spending plans, which would result in weakness in the defense-stock arena. Right?
I’m here to tell you that nothing could be further from the truth.
First off, many defense stocks are experiencing historic foreign demand, which has been the catalyst driving continually strong earnings across the board. Secondly, although defense spending patterns change, the Democrats have not hinted about making major changes to defense spending (other than some minor political lip service). And thirdly, the defense sector offers you a great way to “defend” yourself against the troubles of the credit market.
Judging by the success WOW readers have enjoyed holding November call positions on the three companies listed above, I’d encourage you to add these stocks to your portfolio on any upcoming dips. In the months ahead, you’ll look back and be glad you did!
Bryan
