Never Pay Retail: Here’s How to Buy Stocks at a Discount

By TradeSmith Editorial Staff

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The energy sector is on fire right now. Crude oil has gone up nearly 70% this year, and natural gas has soared 86%.

Energy companies are making money hand over fist. For proof of this, just take a quick look at the latest quarterly financial results.

These companies are absolutely crushing it in terms of top-line revenue growth, with quarterly sales up a stunning 74.3% year over year. That’s a combined increase of $118 billion in revenue for the last quarter alone.

In fact, the SPDR energy sector ETF, XLE, is the best performer of all 11 S&P 500 sectors so far this year, up 53.3%! That’s three times higher than the revenue growth for the overall S&P 500, up a mere 17.5% year-over-year.

And the stellar sales and profit growth for energy sector companies shows no sign of slowing down. Fourth-quarter sales are expected to soar another 67.5%, compared to just 12.3% for the S&P 500 overall.

After a 50%-plus gain so far this year for energy stocks, if you think you may have missed the boat, think again.

It’s difficult to say for sure where oil and natural gas prices will go from here. But considering bullish expectations for strong, sustained sales and profit growth for the sector, I would say energy stocks are worth a closer look for your portfolio.

But with so many stocks to choose from in the energy sector, picking the best ones with the most upside potential could be a daunting task.

That’s where our powerful TradeSmith screeners come in handy.

On Monday, I showed you one way to find investing opportunities using our tools. Today I’ll show you a different way to do the same thing, depending on what indicators mesh most closely with your own investment philosophy.

My Simple Steps for Finding Hidden Gems

My first step was to look at the S&P 500 sectors to gauge the Health Distribution of energy. Sure enough, 96.88% of the stocks within the energy sector are in the Green Zone. It’s a target-rich environment.

Drilling down further into the energy sector, I noted that nearly 71% of stocks are Bullish, and 29% are Strong Bullish, our top rating.

Next, I clicked on the percentage of Green Zone stocks in XLE to bring up our Screener, which allows me to then screen those stocks further.

Within the Screener, I added Rating and Cycle Period as a filter, allowing me to find only Green Zone stocks that are bullish or strongly bullish and in a valley or upcoming valley within our Timing system. The resulting list includes 19 stocks that are healthy and primed to move up.

So here’s how I narrowed the list even more. I sorted the stocks first by the VQ (Volatility Quotient) Ratio and then by Rating.

The VQ Ratio is a measure of a stock’s current VQ as compared with its historical average VQ. When the current VQ is higher than average and the stock is in a Health Indicator uptrend, this acts as additional energy that can propel the stock even higher.

We call this concept Kinetic VQ, and it’s one of our cutting-edge stock selection strategies.

The higher the VQ ratio, the more internal energy the stock has in reserve to help it spring higher in price.

Finally, I sorted by Rating to find stocks that are strongly bullish and also have a high VQ Ratio. One stock jumped right out at me with the best combination of TradeSmith factors in my book: oil services giant Halliburton (HAL).

HAL really ticks all the boxes for me.

  • Its current VQ is 44.1%; that’s more than one-third higher than its historical average VQ of 31.5%. This tells me HAL still has plenty of kinetic energy for a continued move higher.
  • HAL carries our top rating of Strong Bullish. It’s among the best bets in the energy sector; remember, only 29% of stocks in the sector made that cut.
  • HAL is in the Green Zone and just moved into a fresh uptrend at the end of October.
  • From a Timing perspective, HAL is still in a valley turn area, as shown in the chart below. That means more upside is likely in the months ahead.

How to Aim for Profits in HAL

First, you could simply buy HAL shares outright at a recent price of $23.20 a share.

Or, if you would rather acquire HAL shares at a discount and get paid while you wait to own the stock, consider this:

Sell the HAL Dec. 17, 2021, $21 put option (HAL211217P00021000) at a recent $0.30.

You’ll receive an “instant dividend” of $30 per contract on the spot.

That’s the premium you’ll earn by selling each put, and it’s a 10% return on investment (ROI)!

Plus, doing so gives you a chance to buy HAL shares at just $21 per share over the next month, nearly a 10% discount from today’s price.

Just remember, if you are put the stock, you’ll need enough cash in your brokerage account to cover the stock buy.

For each put contract sold, you would be able to buy 100 shares of HAL at $21 (if the trade is in the money and gets exercised), for a $2,100 trade cost.

“Never pay retail” is a good rule of thumb to follow, especially in the stock market. And selling cash-secured put options on stocks you want to own anyway is a great way to buy stocks wholesale, at a discounted price.

Does this sound like a strategy you would like to take advantage of in your own investment portfolio? Why or why not? I’d love to hear from you. I can’t respond to every email, but I read them all.