- Home
- >
- Stocks Daily Forecasts
- >
- 7 Ultra-Cheap Value Stocks to Buy Now
7 Ultra-Cheap Value Stocks to Buy Now
Rating:
Loading...What makes value stocks … well, values? When is a cheap stock actually inexpensive … and when is it just plain ol’ cheap?
When a company has size and real earnings, and when its area of business is just out of fashion, even a great company’s stock can get tossed into the bargain bin. That is where you want to pick it up.
One of the most basic metrics of value stocks is the price-to-earnings ratio. The lower a stock’s P/E, the faster the price of your investment will be covered by earnings. Fast-growing stocks have very high P/E ratios and appeal to investors seeking growth. Slow-growing stocks have lower P/E ratios but may either pay dividends or be poised for a turnaround.
These 7 ultra-cheap value stocks to buy all sell at single-digit P/Es, but also feature market caps of over $10 billion. They’re solid companies with real profits. Some even pay dividends.
1. GM P/E: 6.3
Mention an interest in General Motors Company (GM) and get ready for the pushback.
GM is a slow-growth company that can only deliver 2% of revenue to the net income line in good years, and which took a government bailout to save less than a decade ago. The “car buying cycle” is always said to have just peaked, and 2015 does remain its best year, with U.S. sales of 3.085 million vehicles.
But this is not just an American company. In 2015, GM sold a total of 9.8 million cars, and China is its biggest market, not the U.S.
Even near its highs for the year, GM stock yields 4% and trades at around 6 times earnings. General Motors covered that dividend three times with earnings last year, meaning it looks safe, and just one-quarter of its assets are subject to long-term debt. Operating cash flow has been rising for three years straight, and came in at $16.545 billion last year.
The best argument against GM is that auto sales are unsustainable. But the 264 million cars on U.S. roads today average 11.6 years old, a record. Some 17.5 million cars were sold in 2015, while 11 million were scrapped.
2. eBay P/E: 5.4
Some value stocks become cheap because investors believe that a competitor is about to eat (or already is eating) its lunch.
For eBay Inc. (EBAY) — the auction site that was one of the first true e-commerce success stories — that competitor is Amazon.com, Inc. (AMZN). The assumption that eBay is always about to be trampled by Amazon is a big reason why shares are trading at less than 6 times earnings while the market continues to set new records.
However, Christmas of 2016 was very, very good for eBay, with earnings of $601 million on revenues of $2.4 billion. The site consistently delivers operating margins of 25%, and its $7.5 billion in long-term debt is nearly equaled by the $7.13 billion of cash and short-term securities on its books at the end of 2016.
eBay is no longer just an online garage sale. It includes StubHub, the ticketing site, a host of local classified ad sites and an open source platform that lets merchants access its application program interfaces directly. The company continues to open new markets, like wine, and the stock has advanced 13% since the start of 2017.
If you believe in the second-hand market, then, you can buy eBay with some confidence. It’s a tech stock that should do well when the next recession hits. And given that the current recovery is now 8 years old, wise investors should be ready for a recession.
3. Equity Residential P/E: 5.3
Real estate investment trusts (REITs) are billed as income investments, not value plays, yet EQR firmly belongs in this list of cheap stocks to buy now.
Equity Residential (EQR), which has properties in some of the country’s hottest rental markets, like New York, San Francisco and Seattle, certainly looks like a value play with a listed price earnings ratio of around 5. That’s despite paying around 3.2% in dividends — not great for a REIT, but better than a 30-year U.S. bond.
Even without asset sales, Equity does very well most quarters. For the December quarter, for instance, it earned $276.9 million on revenue of $605.5 billion. Nearly 50 cents of every dollar coming in turns into net income. The only operating company I know which does that is Facebook Inc. (FB).
Then there is Equity’s secret weapon. EQR is an investment vehicle for Sam Zell, a pioneer of the modern real estate industry who is personally worth $4.8 billion. Zell has turned out to be a master of the real estate game because he knows when to sell, not just when to buy. He sold his Equity Office Properties Trust for $36 billion, in a leveraged buyout by the Blackstone Group LP (BX) in 2006, shortly before the real estate market peaked.
The strategy for EQR now is to move away from the suburbs and toward properties in central cities. This makes good sense given the larger economic trends of research and computing driving progress, and of people preferring shorter commutes. There is also the possibility Zell could sell the whole company, with analysts believing its real estate, less debt, is worth 20% more than the stock’s current price.
4. Gilead Sciences P/E: 6.9
Gilead Sciences, Inc. (GILD) is the company that made Hepatitis C a treatable condition, and it has been richly rewarded for that. But the shares peaked in 2015 and have since lost more than 40% of their value.
That’s despite operating margins of more than 50% and a 3% dividend that’s downright rare in the biotech space.
GILD began falling in mid-2015 after investors came to doubt whether the company has an encore, and knowledge that sales of its Hep C compound, sold as Sovaldi and Harvoni, will decline as Western customers are cured. (The compound is sold for much less in developing markets like India.) Earnings are churning, but the stock trades at less than 7 times earnings.
Sales have been slowly falling, from $8.5 billion in the fourth quarter of 2015 to $7.3 billion in Q4 2016. But the slope has been gradual, and the company’s dividend is covered almost five times by earnings.
The best reason to buy Gilead is its balance sheet. There is now no debt, and $32 billion in cash on the books. That balance sheet could be used to fund a major acquisition, or a new drug discovery. A candidate drug against HIV called Descovy could be that great discovery. Gilead already has a $10 billion per year HIV franchise so it can get a winning drug to market quickly, and Phase 3 studies for Descovy are already underway.
So far, Gilead management is more interested in making rather than buying new cures. If it were to go on a buying spree, it might look at $23 billion cancer-drugmaker Incyte Corporation (INCY). Or it might pick up BioMarin Pharmaceutical Inc. (BMRN), a $16 billion outfit working on rare genetic conditions among children. It even has the size to do a merger of equals with Bristol-Myers Squibb Co (BMY), an $88 billion company with 2016 sales of more than $19 billion.
All that is speculative, but the clock is ticking. Maybe an activist investor like Carl Icahn can force management to make a move.
5. Delta P/E: 8.8
If industry analysts distrust any industry more than autos, it’s airlines.
Nearly all major carriers went through some form of bankruptcy during the last decade, victims of vicious price wars. Delta Air Lines, Inc. (DAL) was among them. It bought Northwest Airlines a year after leaving bankruptcy in 2007, and many believe it was Northwest’s corporate culture that is responsible for Delta’s later success.
Regardless of who is responsible, Delta is now the world’s biggest airline and its stock has come roaring back.
DAL brings 10% or more of revenue to the bottom line. Debt has been reduced to 15% of assets. The company even instituted a dividend in 2013 that yields a modest 1.6%. If you bought Delta shares at the time of the merger, your stock is worth five times more than it was — and you have a dividend that has tripled.
So how is it possible that even after a spectacular run-up of 40% in the past six months that you can buy DAL for less than 9 times earnings?
Among these cheap stocks, Delta might have the most to love.
6. Corning P/E: 8.6
Corning Incorporated (GLW) is the cheapest technology stock around. Cheaper than Apple Inc. (AAPL). Cheaper than International Business Machines Corp. (IBM). Cheaper, even, than HP Inc. (HPQ).
Yes, Corning is a tech stock.
Look at your mobile phone. That’s probably Corning Gorilla Glass covering the screen, glass that resists breaking even when you’re clumsy. Corning says it is engaged in “materials science technology and innovation,” and that has been its focus since 1851. Over the years it has gone from headlights and telescope lenses to optical fiber cable and now, materials like Willow Glass, which makes solar panels flexible enough to roll into a tube.
But the stock still sells for just less than 9 times earnings, even at 10-year highs. Investors who bought and held the stock since the bottom of the last crash have seen their dividends triple to 16 cents. GLW recently broke above its 2008 peak and is cruising even higher.
Corning is simply one of those investments you seldom see anymore: a steady loyal outfit (it has kept its base in Corning, New York since 1868) that sticks to its knitting, that does its job, and that manages to keep up with a changing world.
7. Altria P/E: 9.9
You may know Altria Group Inc. (MO) by its former name, the American tobacco giant Philip Morris. Its best-known brand is Marlboro.
Altria has always been a tobacco company. It still buys other tobacco companies, most recently privately held Sherman Group Holdings LLC, and makes money off them.
What investors need to know is Altria makes a lot of money, and it has been doing so for many years.
If that is your brand of success, go for it.
Varchev Traders Read more:
If you think, we can improve that section,
please comment. Your oppinion is imortant for us.
