CBOE Holdings: A Quality Stock That's Worth Watching
Identifying quality stocks and being patient are proper goals in a market correction.
Sometimes junk will make nice moves in a market correction. Impatient investors rush to buy because "the train is leaving the station."
You need to know more. Is the train mechanically sound? Are the tracks clear of debris? Is the switching mechanism working?
Fundamentals and conditions matter for trains and stocks.
CBOE Holdings ( CBOE ) is the largest U.S. options exchange and creator of listed options. The stock has solid fundamentals, but the market's condition means the investor needs to be patient.
The stock's Composite Rating is 97, which puts it in the top 3% of stocks in IBD's database. The Composite Rating combines all five IBD ratings into a single number.
Earnings grew 22%, 35% and 23% in recent quarters as revenue stepped up 8%, 18% and 14%.
Pretax margin last year was 48%, the best in at least eight years. Return on equity was 63%, and the company debt-to-equity ratio is 0%.
On June 3, IBD pointed out in this column that the stock had formed a bullish three-weeks-tight pattern with a 41.10 buy point. Four days later, it triggered the buy point.
A buy was possible, but many investors might've missed it. The uptrend was under pressure. Buys can be made in a pressured uptrend, but many investors are understandably reluctant.
CBOE gained as much as 24% from the three-weeks-tight.
Now CBOE is falling toward its 10-week moving average, which potentially could create a new entry. The stock must bounce off the line in strong volume, and the market must be in an uptrend.
Patience is required here.
CBOE's annualized dividend yield is 1.5%.