With the market up more than 20% since the late-December low, the argument that stocks — at least some stocks — are back to being overvalued and overbought holds at least a little water. Others argue that the rebound rally has only just begun, and valuation isn’t yet a problem.
The truth is, as usual, somewhere in the middle of the two extremes.
For deeply undervalued equities in anything but a wildly bearish environment, the bigger risk is being on the sidelines rather than in a position.
To that end, here’s a rundown of 10 of the market’s best cheap stocks to buy right now. In some cases, the per-share price is just oddly low.
In other cases, prices compared to earnings are well into single-digit territories. In most cases, both qualities apply. In no particular order …
CBS Corporation (CBS)
CBS Corporation (NYSE:CBS) may have missed last quarter’s revenue and earnings estimates, but shares rallied following the Q4 report anyway because the television giant improved in a big way where it needed to the most … streaming. By 2022, it should have 25 million streaming customers in tow.
It’s only a sign of the current paradigm shift in how video is delivered to consumers. It’s also the reason we’ve seen a frenzy of M&A within the film and TV arena, the most notable of which is the Walt Disney (NYSE:DIS) acquisition of Twenty-First Century Fox (NASDAQ:FOXA). CBS has also jockeyed to acquire Viacom (NASDAQ:VIAB).
With CBS stock priced at only 7.7 times this year’s expected earnings though, the company would also make for a dirt-cheap entry or expansion into the entertainment industry.
Air Lease (AL)
Air Lease (NYSE:AL) relies on at least a decent economy to drive demand for passenger jets, and recently, investors have seen what they think are too many red flags.
Take a closer look at all the data, though, and matters aren’t as dire as they may seem. While global economic growth may be running into a near-tern headwind in the wake of plenty of political drama, in the bigger picture, airlines still desperately need new aircraft to satisfy demand.
In November of last year, and for the 12 months ending then, enplanements and total miles flown once again reached record levels. Boeing (NYSE:BA) believes that between now and 2037, the world’s airlines will take delivery of more than 42,000 new aircraft.
Given that trend and outlook, Air Lease is undervalued at its trailing P/E of just above 5.
Micron Technology (MU)
Add Micron Technology (NASDAQ:MU) to a list of cheap stocks to buy before it’s no longer cheap.
It’s not an easy idea for some investors to get behind. The ramp-up of computer memory production has created a price-cutting glut, and it took a toll on Micron’s most recently-reported quarter’s bottom line. The previous quarter’s gross margins of 59% were further projected to slip to between 50% and 53%, versus estimates of 55%.
This is a cycle investors have seen over and over again, however, with the same end result every time. That is, producers will curtail production, abating supply and restoring pricing power. Rivals Samsung Electronics (OTCMKTS:SSNLF) and SK Hynix, in fact, have already decided to slow their DRAM expansion plans, and Micron has vowed to cut capital expenditures by more than $1 billion this year.
It could take a while for tempered production to restore DRAM prices, but trading at only 6.6 times this year’s projected per-share profits, MU stock is worth the wait. It has been every time before.
Citigroup (C)
Citigroup (NYSE:C), like most bank stocks, had a rough 2018, and though it has bounced this year, the 2019 rally to-date has been subpar. The stock is trading at a trailing P/E of 10, and a forward-looking earnings multiple of 8 … cheap even by current banking stock standards, which have been abnormally low.
The reason for the mismatched price and forecasted earnings is understandable enough. That is, enough investors are convinced interest rates are going to become just a little too high against a backdrop of just a little too much economic weakness. The concern is largely manifested in the flattening yield curve, which is particularly problematic for banks.
As was the case with Air Lease though (and will be for several others below), the worry isn’t fully merited.
NCR Corporation (NCR)
You may know the company better as National Cash Register Corporation, even though it changed its name years ago to NCR Corporation (NYSE:NCR). The less-limiting moniker reflect the fact that point-of-sale devices are now much more than a means of completing a sale. Since then, the company has expanded into areas like ATM machines, self-service kiosks and full-blown inventory management platforms.
It’s certainly a move in the right direction, although it’s arguable the market isn’t giving the new NCR enough credit. Shares are priced at only 8.8 times this year’s projected profits.
That might have something to do with the fact that outfits like Square (NYSE:SQ) and Paypal (NASDAQ:PYPL) are encroaching in NCR’s turf. It’s a legitimate concern too. There’s a huge subset of companies, however, that will prefer to do business with a long-established name like NCR.
Timken (TKR)
Timken (NYSE:TKR) is anything but a household name. The company makes ball bearings and industrial transmissions to supply mechanical power where it’s needed in a manufacturing environment.
It’s anything but a riveting (pun fully intended) business. But, it’s a business that’s starting to grow in earnest again as America’s industrial engine revs. After rolling over in 2015 as the nation started to fully transition to a service-oriented economy, the United States began making more goods again in 2016. It’s never looked back.
The paradigm shift has proven to be a boon for Timken, which has grown revenue at a double-digit pace since early 2017. Better still, the new revenue trend has set the stage for earnings growth this year that translates into a projected P/E of only 8.2.
General Motors (GM)
There’s no denying General Motors (NYSE:GM) ran into a headwind three years ago, when “peak auto” became a reality. Though a victim of its own rampant success — subsequent comparisons have all looked lackluster — investors tend to only care about how current results stack up against the recent past.
Those investors, however, may be unfairly harsh with their treatment of GM stock and its peers. While it remains unclear when we’ll see another automobile purchase growth cycle again, General Motors is still a solid cash cow, yielding 3.9% while it sports a dirt cheap trailing P/E of 7.2.
Regardless, the carmaker continues to impress regardless of the stock’s valuation. Nicolas Chahine commented earlier this month “The 2018 barrage of tariff headlines made GM stock a tough trade as it fell sharply off its January 2018 highs. This year so far it has been the total opposite. GM management clearly gave Wall Street reason to rejoice and buy the stock and investors ate it up. This morning, they backed up their claim…”
Lumentum Holdings (LITE)
Don’t worry if Lumentum Holdings (NASDAQ:LITE) is an unfamiliar name — most investors probably haven’t heard of it. The company makes communications equipment and industrial lasers, and has a big presence in the fiber optic industry.
There has never been a time when the world has needed such high-speed connectivity. As more and more wireless devices compete for a finite amount of radio frequency bandwidth, middlemen are looking for easier and faster ways to offload some of that traffic to physical infrastructure. Fiber optic lines are more than up to the task.
The market doesn’t seem to see it yet, pricing LITE stock at a forward P/E of 9.4 despite this year’s expected revenue growth of 28% and next year’s 27%. As time passes though, Lumentum’s role in the future of telecom will become clearer.
Terex (TEX)
Name any piece of mobile machinery, and Terex (NYSE:TEX) probably makes it. From backhoes to cherry pickers to tracked conveyers to cranes, Terex has solutions for almost any industrial application.
That diversity hasn’t helped revenue in a while, with the top line peaking in 2014. The stock has been hit-and-miss since then … more misses than hits.
The doubters may have overshot their pessimism though, sending TEX stock to a forward-looking P/E of 10.5 following what should be nearly 17% revenue growth for 2018. While sales growth is expected to slow this year, the company more often than not topped sales and earnings estimates in 2018. It may hold a few pleasant surprises in store this year.
Capital One (COF)
Last but not least, add credit card company Capital One Financial (NYSE:COF) to your list of cheap stocks to consider here.
Like Citigroup, Air Lease and others, investors have been fearful that a slowing economy — maybe even a shrinking one — could work against Capital One. In fact, rising interest rates could hit Capital One particularly hard in that situation, as its target market of risky borrowers could be the first to underpay of stop payments altogether should the global economic condition sour.
It’s another case, however, where the doubters may have overshot. COF stock is now priced at only 7 times this year’s expected profits, making it one of the cheapest stocks to own in the financial sector. The worst-case scenario is more than priced in.
— James Brumley
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Source: Investor Place