It Doesn't Take A Magician To Recognize A Bargain When They See One - Here're 10 Such Stocks -
Monday , 18 January 2021

It Doesn’t Take A Magician To Recognize A Bargain When They See One – Here’re 10 Such Stocks

…Many high quality companies are down double digits from recent highs…[and this article identifies 10] that are trading at a discount to fair value…in the market today [and, as such, represent]…excellent bargains…

This version of the original article, by Nicholas Wardhas been edited* here by for length (…) and clarity ([ ]) to provide a fast & easy read.  For the latest – and most informative – financial articles sign up (in the top right corner) for your FREE bi-weekly Market Intelligence Report newsletter (see sample here)

What follows is a list more so than a ranking: is being given away – check it out!

1. Apple (AAPL)

…This company is a juggernaut…

During its recent quarter, AAPL posted 20% growth on the top-line and 41% on the bottom yet the stock sold off double digits because the company is changing the data that it’s going to be reporting in the future? That’s a sale that I’m happy to take advantage of


…Chip stocks were crushed in October…and, now that they’re trading near lows, I’m starting to see some attractive potential entry points. NVDA is a classic example of this.

When NVDA shares were trading for $280 a month ago, they were sporting a 40x ttm multiple. Now, down near $200/share, they’re trading for ~30x. This is in-line with the company’s long-term normal P/E…30x isn’t an extraordinary premium to pay for a company with long-term double digit growth potential…

For investors who felt like they missed out on the NVDA growth story earlier in the year now have a chance to dip their toes into the water at normal valuations.

3. Texas Instruments (TXN)

…Texas Instruments is an industry leader in its own respect, though I admit that the analog chip space isn’t quite as exciting as the artificial intelligence area. Regardless, the Internet-of-Things is coming and I suspect that TXN will be a beneficiary.

A 17.5x multiple doesn’t represent a dirt cheap valuation on TXN shares but it’s essentially in-line with their 10-year P/E average…[In addition,] TXN offers a strong dividend yield with even stronger dividend growth prospects. TXN is currently yielding 3.2% and recently increased its dividend by 24.2%.

I think paying fair value for a high quality name with such a strong dividend makes sense and I was happy to do so.

4. United Parcel Service (UPS)

…UPS just reported earnings that involved high single digit sales growth and 20%+ EPS growth y/y. Demand is sky high moving into the holiday season and I suspect that growth will continue long-term…

UPS share are now trading for ~15x earnings. This is well below the company’s long-term average P/E of ~22.5x. Combine this discount with a solid 3.4% yield and a strong upward trajectory in terms of dividend growth and I think you’ve got a great investment opportunity at hand…

5. FedEx (FDX)

FedEx benefits from the same secular tailwinds that UPS does. I like FedEx’s foreign business and its focus on business-to-business volumes.

FDX’s yield is significantly lower than UPS’s, at just 1.15%, but its valuation is lower as well. As I said, UPS traded at ~15x after recent weakness. Well, FDX shares are trading for 14x. Furthermore, FDX has been known for posting higher bottom line growth than UPS and analysts aren’t expecting that trend to end in the near future – FDX is projected to post 15% EPS growth in 2019 and 12% growth in 2020. This means that shares are priced with a very low PEG ratio of less than 1x and a forward P/E multiple of ~11.5x.

This is one of the best dividend growth opportunities in the market. Since initiating its dividend in 2002, FDX has posted an astounding dividend growth CAGR of 26.5%. I suspect that strong double digit dividend growth will continue into the future as well. After all of this growth the company still has a payout ratio of ~15%.

6. Constellation Brands (STZ)

Constellation is an alcohol company whose narrative has been hijacked by the marijuana boom. STZ is one of the few beer companies posting strong growth at the moment. Even so, management has made headlines with its large investments in Canopy Growth Corporation (CGC) that have given it a perceived first mover in the pot space as far as large cap U.S. companies go. Because of this, STZ shares have traded up and down alongside the pot stocks (albeit, with less volatility) . In the late summer, this was great for STZ. However, during October, this wasn’t so good.

I think that the tide is turning again. Jeff Sessions…who was staunchly against weed legalization in the U.S. is out of the picture now and the mid-term elections saw more states add medical and recreational use. Although this is speculative, at this point in time I think it’s only a matter of time before the U.S. marijuana laws change and this will be bullish for STZ. I don’t know how long it will take, but in the meantime, Constellation pays a 1.5% yield with some of the best dividend growth metrics going in the market in recent years.

STZ isn’t cheap, but it is down double digits from recent highs. If you felt like you missed out of the pot craze you’re in luck, because the market has given you an opportunity to get into STZ at about the same prices it was trading for when its $4b CGC investment was announced back in August.

7. Facebook (FB)

Facebook’s sell-off since its Q2 earnings report has been well covered. I wondered if the Q3 numbers might help the stock change direction, but that doesn’t appear to be the case. FB is still posting strong growth, but it is slowing and costs are rising as head count increases and the company invests more into security…

With all of these issues at hand, this is still a highly profitable company that has billions of eyeballs focused on its content on a daily basis that just posted 30% revenue growth. FB is trading for just 20x 2018 EPS estimates…[What makes FB] absurdly cheap is that the company…[is expected to be able] to continue on its strong double digit earnings growth trajectory. However, analysts are expecting EPS to be flat in 2019, which is playing a major role in the stock’s recent weakness. If you believe that management can defy expectations and continue to post growth, Facebook could be a fabulous opportunity at these depressed prices.

8. Citigroup (C)

…This stock has been the cheapest of the big banks for years now [as] investors still haven’t forgotten the role that C played in the financial crisis and, while this bank has certainly improved over the years, it certainly isn’t producing results on par with J.P. Morgan (JPM), which I view as best in breed in the big bank space…Sometimes, [though] a cheap valuation makes up for sub-par performance. Right now, Citi is priced so cheaply that I have a hard time imaging that above average total returns aren’t at hand. C is trading for just 10.5x ttm earning at the moment. On a forward basis, C shares are much cheaper, trading for just 8.85x 2019 EPS expectations. Simply put, I cannot see what a company that is slated to grow earnings 32% in 2018, with projected growth of ~15% for 2019 and 2020, is being priced with such bargain barrel multiples.

To make matters better for C investors, the company now yields an attractive 2.7% and authorized a $17.6b buyback program in response to this year’s CCAR results. As a C shareholder, that’s the silver lining of this weakness. I’m sure that management is planning on retiring shares at these depressed valuations, which should help to continue to drive earnings growth into the future.

9. Invesco (IVZ)

…Like Citigroup, I wouldn’t say that IVZ is best in breed…[but] IVZ is even cheaper than C, trading for just 8.2x ttm earnings. IVZ does not have the growth outlook that Citi does [either], however, with -2% growth expected in 2018 and 3% growth expected in 2019, analysts are calling for 13% growth in 2020.

 …[While I don’t expect] IVZ to return to double digit growth without a notable catalyst on the horizon,…IVZ doesn’t have to post double digit growth for investors to do well. Essentially, flat growth combined with the company’s current 5.5% dividend (which is very well covered by earnings) and any sort of multiple expansion back towards historical norms, would produce double digit total returns.

Over the last 20 years, IVZ’s average P/E ratio is nearly 19x. I’m not saying that the company deserves that sort of multiple with its current growth outlook in mind; however, I am saying that [a] slight bump to 10-12x, seems justifiable and if this where to happen, investors would be looking at gains of ~35%.

10. AT&T (T)

AT&T is another beaten down high yielder that I find attractive at current levels…I cannot fathom why T shares are trading for the same multiples today that they were assigned by investors are the depths of the Great Recession. T is trading for just 8.9x ttm earnings, which is well below its long-term average of ~15x. This share price weakness has driven this dividend aristocrat’s yield up to 6.5%. Furthermore, the yield appears to be quite safe, with a 57% earnings payout ratio. T generates more than enough free cash flow to meet its dividend obligations while paying down significant portions of its debt.

Only time will tell if the Time Warner acquisition is the growth driver that this company needs to separate itself from the competition in the telecom space, but in the meantime, I’m more than happy to collect this hefty dividend while I wait.


…Investors have historically done well for themselves buying high quality names into weakness. We can’t ever know where the market is going, but we can identify well run companies that are trading at discounts to their historical averages as well as the broader market. To me, investors are much better off focusing on the value presented by individual equities than worrying about macro issues and broader market trends. No one has a crystal ball, but it doesn’t take a magician to recognize a deal when they see one.

[Editor’s Note: The author is receiving compensation from Seeking Alpha for pageviews of his original article as posted there so please refer to it for the unedited version.]

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(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.}