The market is under heavy pressure Wednesday as Covid and stay-at-home worries start to build. The German DAX index has dropped nearly 5% after news that restaurants and bars will be closed in that country within a few days.
This is creating generalized fear about the economic impact and that is causing extremely broad selling. Breadth is currently running 600 gainers to around 6,800 decliners. That makes it pretty clear that there is no place to hide.
The good news is that in many cases the baby is being thrown out with the bathwater. Not every stock deserves to be sold as if it is going out of business. We have a long list of names on our shopping list but one name in particular that I'm looking at right now is Big 5 Sporting Goods (BGFV) .
BGFV has been on my radar for a while due to some great earnings numbers. Last night it reported earnings of $1.31 per share vs. an estimate of $1.15 and $0.30 last year. The stock is now trading with a trailing P/E of just 5.
Also, Big 5 doubled its dividend and is currently trading with a yield of around 6%. It has no debt and a large amount of cash. In my view, this is an exceptionally good value.
Big 5's exceptional valuation is being ignored right now and that may continue. However, I believe that once we move through the current uncertainty created by the election and potential stay-at-home orders the market will recognize the value and better reflect it. There just isn't great motivation to put money into the market right now when things are being sold so aggressively.
My approach is to keep stalking entry points. I'll hold a core position but I will aggressive trade the sharp dip and bounce. My goal is to try to catch some good entries as support builds. I'll look to take some partial profits when I can but will keep trying to take advantage of the pullbacks. I'll end up doing dozens of trades as things develop.
While this market is creating some opportunities right now, timing is the issue. The only way to make the timing work for you is to move fast and take advantage of the short-term volatility while the overall theme develops.