Source: www.401kcalculator.org
The stock market's performance so far in 2016 hasn't exactly been stellar, with the S&P 500 still down 3% for the year, even after a pretty strong rebound. While it's never fun to watch the value of your portfolio drop, times like this do create tremendous opportunities for bargain hunting. With that in mind, here are three stocks our contributors feel are ridiculously cheap, and worth a look.
Sean Williams: When I think of ridiculously cheap stocks, the one that comes to mind is a company that's already in my long-term portfolio: Bank of America (BAC 3.35%).
Money center banks have taken a lot of heat in recent months because of fears tied with a global growth slowdown, as well as their possible exposure to the energy sector. Since banks are cyclical, slowing growth in China and abroad could reduce deposit and loan activity, which is the bread and butter of banking profits.
The more recent issue has been the sinking price of oil and natural gas. If prices remain this low for these commodities for an extended period of time it could result in debt defaults that directly impact the banking sector, including Bank of America. UBS (UBS -0.21%) estimates B of A's energy exposure at $21 billion, or about 2% of its corporate loans.
Despite these energy loan concerns, which are pretty negligible if you consider the profit potential of Bank of America, there's a lot to like here. First, Bank of America has put the majority of its litigation tied to the mortgage meltdown in the rearview mirror. Bank of America wound up paying out well over $60 billion in fines and settlements which weighed down its profits and its share price. With these billions in settlement costs no longer coming out of B of A's bottom-line, we're getting a purer look at just how profitable it can be.
Secondly, investors can expect rate normalization to eventually bring hefty profits back to Bank of America. It's anyone's guess when the Federal Reserve will begin raising rates at a steady pace, but once lending rates do begin to rise notably from seven years at or near a record low, Bank of America's net interest margin would be expected to expand.
Lastly, we're seeing strong deposit and loan growth across all of B of A's operating segments (consumer banking, global wealth and investment management, and global banking).
Valued at just eight times forward earnings, and sporting a PEG ratio around one, Bank of America could be a bargain that's too cheap to pass up.
Brian Feroldi: Biotech valuations have taken a step back recently, and that's been especially true for Biogen (BIIB 2.03%). Shares of the multiple sclerosis leader's stock are down more than 40% from their 52 week high and they are currently trading hands for less than 15 times expected 2016 earnings, a valuation that the company hasn't seen for years
Investors have been dumping the company's stock due to slower than hoped for sales of its best-selling multiple sclerosis drug Tecfidera. While sales did grow 6% in the most recent quarter, a big chunk of that growth came from changes in inventory levels, causing investors to fear that its growth prospects may be tapering off. Sales of the company's other multiple sclerosis drugs Avonex and Plegridy ended up falling 4.8% year over year during the period. Earnings per share for the quarter only grew by 0.8%, which is a much slower pace than growth investors had been accustom to seeing from the biotech giant.
Despite all the headwinds, I think there's reason to believe that the current sell-off could be overdone. Earnings for the period were held back by a big restructuring charge that the company took during the quarter as a result of its decision to downsize and cancel a few of its pipeline projects. If you adjust for those events earnings per share would have actually rose 10% year over year. Its also worth noting that Tecfidera and Tysabri -- yet another one of its multiple sclerosis treatments -- are still showing growth, just at a more modest pace. Biogen's hemophilia drugs Alprolix and Eloctate are showing fast growth, but their combined sales of $172 million isn't yet big enough to have much of an impact on the company's top line.
Looking down the road, the company has a solid pipeline of compounds that should be reporting data over the next few years, and if the data looks good then shares could start moving in the right direction again. This year the company is slated to report data from its Phase 2 trial that is testing the company's next generation multiple sclerosis drug. Next year we should get an update on its two ongoing Phase 3 trials of its experimental drug nusinersen, which is a compound that Biogen is licensing from its partner Ionis Pharmaceuticals (IONS -0.32%) and is aimed at treating spinal muscular atrophy. There's also aducanumab, the company's potential treatment for Alzheimer's disease, which is currently in phase 3 trials and could be a megablockbuster if it finds its way to market.
All in all, there are plenty of reasons to be bullish on Biogen's stock over the long-term, especially at today's depressed prices.
Matt Frankel: One ridiculously cheap stock that should be on all long-term investors' radar is HCP, (PEAK -0.17%), a real estate investment trust specializing in healthcare properties.
Simply put, HCP has gotten crushed lately. Its largest tenant, HCR ManorCare, is going through tough times, which caused HCP to take an $829 million impairment charge and issue a disappointing 2016 outlook. Additionally, other healthcare operators like Brookdale Senior Living (also a major HCP tenant) are performing extremely poorly right now. As a result, shares took quite a nosedive. Even after a pretty strong rebound, HCP is still down 19% in 2016.
However, there are a few things long-term investors need to keep in mind. First of all, the negative news only affects about one-fourth of HCP's portfolio. The rest is doing just fine – in fact, other than the HCR ManorCare-operated properties, the company is expecting 2016 same-store sales growth in the 2.3%-3.3% range.
Further, this isn't the first time HCP has hit a rough patch, and won't be the last. Even so, the company has managed to increase its dividend for 31 consecutive years, and has produced an average total return of 13.4% over the past three decades, including the recent plunge. Insiders have been loading up on HCP since the drop, and the stock now yields 7.4% for those with the foresight and patience to get in now.
