Buying stocks is usually a pretty complicated business. These are volatile assets that can move unpredictably. Much as we love investing around here, it’s important to remember that individual equities are one of the riskier assets on the market.
So it’s important to do your homework before committing your money to individual companies.
That said, every now and again you won’t really have to think about it all that hard. As Real Money Columnist Paul Price, sometimes the only thing you need to see is the share price. He writes:
“There is something to be said for buying shares in the highest quality companies when they are selling below fair value," Price wrote recently on Real Money. Those kind of stocks rarely go to bargain-basement levels. They do, though, occasionally offer better than average entry points.”
Price suggested that trucking and logistics firm J.B. Hunt (JBHT) is a perfect example. This is a company with strong business metrics across the board, from earnings per share to long-term share price. In recent days the company’s shares have been trading off nearly 50 points from recent highs.
If you’ve been a long-term owner of JBHT, things have been going well. You’ve seen share prices climb around $80 to more than $200 in the last five years alone, and dividends have grown from $0.71 per share to $1.60 in the past decade.
Now, that tumbling share price, makes it a stock that investors should probably want to buy.
Savvy investors will still want to look closer than just the share price. When a good company loses value, it might be a flashing red warning sign. (That is what price signals are supposed to do, after all.) So the question is, why has J.B. Hunt dropped by more than 20 percent in the span of weeks?
This new low, writes Price, “came as people fearing a recession during 2023 decided to bail out of virtually every transportation-related company- from rails and airlines to truckers and even FedEx FDX and UPS UPS.
When whole industries get tarred with the same brush you can be confident that the poor stock charts are not related to company-specific news.”
This is what’s known as “systematic risk,” when investors trade on an industry or the market rather than on individual companies. It can drag down the price for even good companies, creating an opportunity for you to buy in below fair value.
