Editor’s Note: We are providing an equity trade for conservative investors and an options trade for aggressive traders.

EQUITY TRADE INSTRUCTIONS

Symbol: IVZ (NYSE)
Limit: Buy below $25
Holding Period: 5 months
Target Price: $29
Target Gain: 16%

OPTIONS TRADE INSTRUCTIONS

Symbol: IVZ190118C00024000
Limit: Buy the Call option below $2.25
Strike Price: $24
Expiration Date: January 18, 2019
Target Gain: 120%

COMPANY DESCRIPTION                     

Invesco Ltd. is a publicly owned investment manager. It manages separate client-focused equity and fixed income portfolios. The firm employs absolute return, global macro, and long/short strategies. It employs quantitative analysis to make its investments. The firm was founded in December 1935 and is based in Atlanta, Georgia with an additional office in Hamilton, Bermuda. Link to company website.

TRADE RATIONALE       

Invesco is one of the few financial stocks to perform poorly this year. That’s because it’s not a bank but a mutual fund manager, so income is a function of assets under management and not interest rate spread. With so much money flowing into hot momentum stocks this year, Invesco has seen the size of its asset base diminish.

However, I believe the type of market-neutral, long/short strategies that Invesco employs will enjoy renewed interest after Labor Day as the mid-term elections start looming large. This week’s headlines regarding the plea bargain by President Trump’s former attorney will only heighten anxiety that the Republican Party may lose too many seats in November to implement the remainder of its pro-growth economic agenda.

Even if that does not turn out to be the case, just the fear of it may temporarily send money scurrying to the sidelines until the dust settles. To help attract more of those dollars, Invesco recently announced a fee reduction for three of its “smart beta” funds. It appears the stock market also overlooked a 2.5% bump in assets under management during the month of July.

Invesco earns the highest possible score of 10 from my IDEAL Stock Rating System due to its high forward dividend yield (4.9%), improving cash flow, and low forward P/E ratio of less than nine times earnings. In addition, its P/B (price to book) ratio of 1.15 is below Warren Buffett’s threshold for attractively priced stocks.

From a technical perspective, the RSI for Invesco is on the upswing and is close to breaking above 50. The next test will be when IVZ bumps up against its 50DMA of $25.38. If it can break through that, it could be clear sailing up to $27. After that, it all depends on how soon investors begin getting nervous about what may happen ten weeks from now.