The stock market has been an absolute roller coaster over the last few months. The Dow Jones Industrial Average has fallen more than 30% from all-time-highs, and we haven’t even reached the bottom yet. Is it time to sell?
Nope. And here’s why.
That’s why we’re sharing with you the two best value stocks to buy today.
Something to consider, though: “Cheap” does not mean “value.”
And thanks to the coronavirus crisis, two of the most explosive and exciting companies are now in value territory.
Here’s what I mean…
How to Spot a Value Stock
A stock being “cheap” doesn’t necessarily make it a value play. Some stocks might be trading for half of what they were earlier this year, but you could still be overpaying for them.
That’s because value is more than just the price. It’s what you’re getting for your money. Are they profitable? Do they have enough cash on hand to sustain themselves in a downturn? Are they in a growth industry?
The price/earnings ratio is one easy way to see whether a stock is a value buy or not. When a stock’s P/E ratio is lower than its industry peers or its historical average, the market might be undervaluing the stock.
But a low P/E ratio is only one part of the equation for finding value stocks.
“Many P/E ratios have fallen to low single digits because they’re not going to have any earnings,” says Shah. That’s why it’s important to look at the company itself as well.
Today, we’re going to look at two companies that fit the bill.
Typically, you might think of value stocks as boring. Established players like Johnson & Johnson (NYSE: JNJ) or Caterpillar Inc. (NYSE: CAT) have predictable businesses, steady dividends, and seem to always be trading at value prices. But the recent dip is giving us much more interesting value stocks to work with.
These two exciting stocks both have a promising future and trade at a hefty discount in the current bear market. If you already own them, you might even consider buying more while they’re down…
Best Value Stocks to Buy, No. 2: Microsoft Corp.
Microsoft Corp. (NASDAQ: MSFT) has been hit hard by the market sell-down. But Shah says it should “continue to grow” when it’s all over.
Shares are down 22% since the end of February. At its low, it was down 38%.
But again, we don’t know where the bottom is at this point. The recovery could very well have been a temporary response to the coronavirus relief package Congress is expected to vote on soon.
Right now, this stock is trading a little above $150, when its recent all-time-highs were closer to $190.
The price has slid enough that it’s affected the P/E ratio. It’s trading for 26 times earnings, against a five-year average of 33.
This could be the best discount you ever get on Microsoft if you act now. If you’re already holding, you might want to buy more.
If you want even more of a discount on a high-value stock, just look at this next one.
Best Value Stocks to Buy, No. 1: Apple Inc.
Shares of Apple Inc. (NASDAQ: AAPL) have fallen 27% since the middle of February.
The drop was enough to lower Apple’s price/earnings from a record high of 25 to just 20.
While it’s still above the five-year average of 16, Apple has also significantly ramped up profits in the last five years. Its bottom line has risen 26% since 2016, from $45 billion to $57 billion. And the stock has risen 107%.
If its P/E ratio stays at 20 and its earnings are growing, you know the stock is undervalued.
However long the current bear market lasts, Apple will continue to be a staple in many portfolios. It’s projected to grow even further with hands in several markets, in addition to iPhones and smartwatches.
“Apple is making a fundamental pivot into services and, specifically, into the single most lucrative market in the world,” says Money Morning Chief Investment Strategist Keith Fitz-Gerald.
That’s the healthcare industry he’s talking about.
“The U.S. medical market alone for Apple-powered medical devices may be three times the entire global iPhone market,” says Keith. “That pencils out to around $300 billion.”
Apple CEO Tim Cook has said healthcare could be Apple’s “greatest contribution to mankind.” And you know that sector’s not disappearing in the midst of a global health crisis.
Cook is already among several CEOs who have pledged ventilators for coronavirus patients. But even after this crisis, the company plans to go beyond measuring heart rate with its devices to meeting more industrial high-tech medical needs.
Action to Take: Buying a value stock is more than a stock at a discount. Cheap stocks could be cheap for a reason. A value stock is cheap because it can last the storm of a global pandemic, then thrive in the road ahead. Microsoft Corp. (NASDAQ: MSFT) and Apple Inc. (NASDAQ: AAPL) are trading as much as 39% from their most recent highs. This could be the best discount you ever get on some of the most valuable stocks in the world.
— Mike Stenger
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Source: Money Morning