By Brett Eversole

Quality companies are going on sale. Investors are scared. As stocks bounced around wildly in recent weeks, investors started selling first and asking questions later. This volatility creates opportunities. It has put one of the world’s strongest companies on sale. History says this kind of opportunity could lead to 9.4% gains over the next three months.

Today’s opportunity is in a health care giant Johnson & Johnson (NYSE:JNJ).

JNJ has been a leader in consumer health care products, medical devices, and pharmaceuticals for decades. The company’s share price clearly reflects that. Since 2000, JNJ has more than doubled the return on the S&P 500.

However, investors are scared today, and they’ve sold JNJ shares in droves. We can see this by looking at JNJ’s relative strength index (RSI).

The RSI is a comparison of a company’s recent gains and losses in share price. These moves combine into a simple 0-100 index. When the RSI is low, it shows that a company is oversold, which often leads to a bounce in prices.

Shares of JNJ just fell into extreme oversold territory at the end of August. JNJ has only been this oversold a handful of times since the bull market began in 2009. Take a look:

History shows that buying JNJ after these oversold extremes is a good idea. The company has increased 9.4%, on average, in the three months after each extreme. The table shows the full details:

Buy Signal
1-Month Return
2-Month Return
3-Month Return
3/10/2009
7.6%
13.2%
17.5%
6/8/2010
4.7%
2.3%
1.0%
2/1/2011
1.6%
-1.0%
10.3%
3/17/2011
4.2%
14.2%
15.1%
8/12/2011
1.3%
2.4%
2.1%
6/4/2012
9.1%
9.8%
9.1%
8/28/2013
0.2%
6.8%
10.6%
2/6/2014
6.1%
11.3%
14.1%
10/15/2014
11.1%
6.5%
5.0%
Average
5.1%
7.3%
9.4%

A 9.4% gain in three months is a big return in a large business like JNJ. Of course, we can’t know for sure that we’ll see those kinds of gains starting now. But JNJ shares have never lost money three months after similar occurrences.

Investors are scared today. They’ve sold out of solid companies like JNJ. According to its RSI, this is one of the best opportunities we’ve seen in recent years.

History shows Johnson & Johnson could see hefty gains over the next few months. Of course, if you buy today, use a trailing stop to protect your downside. But with J&J oversold, it’s worth considering.

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