With market indexes hitting all-time highs, some investors might be worried that stock valuations have become too frothy. But while it's true that many stocks are priced expensively right now, there are still some bargains to be found.
AbbVie (NYSE:ABBV), Cisco Systems (NASDAQ:CSCO), and Citigroup (NYSE:C) are three stocks that especially look cheap. All three also claim solid businesses with good growth prospects. Here's why AbbVie, Cisco, and Citigroup are cheap stocks you can buy today.
AbbVie stock trades at a little over 10 times expected earnings. That would be an attractive valuation even if the biotech didn't have solid sources for future growth. But AbbVie does have plenty of growth drivers. So why is the stock so cheap right now?
The biggest issue relates to fears over the possibility that the company's top-selling drug Humira could face competition from biosimilars. However, AbbVie thinks it can fend off U.S. competition until 2022 by defending its intellectual property rights to the drug. That doesn't seem overly optimistic, considering that the company has 61 patents for Humira and the first court date doesn't happen until November 2019.
In the meantime, Humira keeps on generating billions of dollars in revenue and sales continue to grow. AbbVie's fastest-growing current product, though, is Imbruvica. Sales for the cancer drug soared nearly 45% year over year in the first quarter of 2017.
AbbVie's pipeline includes several strong candidates as well. The company could launch two new products next year with blockbuster potential -- endometriosis drug elagolix and cancer drug Rova-T. Two prospective successors to Humira, ABT-494 and risankizumab, could hit the market in 2019 if all goes well in clinical studies. On top of its solid growth potential, AbbVie rewards investors with a nice dividend, which currently yields 3.81%.
Cisco Systems stock trades at less than 13 times expected earnings. The technology giant took a beating in May after providing disappointing guidance for its fiscal fourth-quarter revenue. Should this weak outlook scare investors away? I don't think so. Instead, Cisco now looks like an even better bargain than before.
The company gave three key reasons for expecting lower revenue in the fourth quarter. Up to half of the revenue decline will come from Cisco transitioning to a subscription model. While this move will produce short-term pain, it should provide long-term gain with higher recurring revenue. The other two reasons for the lower revenue -- weak orders from service providers and in emerging markets and weakness in the public-sector market -- should only be temporary issues.
Over the longer term, Cisco should be in position to perform relatively well. Over the past five years, the company grew earnings by an average annual rate of a little over 5%. During that same period, Cisco stock nearly doubled. Wall Street analysts project the company will grow earnings by more than 10% over the next five years.
Even if Cisco doesn't quite hit that level of earnings growth, investors should still profit handsomely from owning the stock. Cisco's dividend yield currently stands at 3.63%. The company appears to be in great shape to keep increasing its dividend in the future.
Citigroup stock trades at just over 10 times expected earnings and below the book value of the company. After a big drop in its share price in early 2016, the global financial-services firm has rebounded nicely. So why is Citigroup still so inexpensive?
The company has seen lower mortgage revenue in the U.S. Citigroup derives a significant chunk of its total revenue from Europe. Uncertainty in Europe, especially the U.K. withdrawal from the European Union, isn't good for the company. However, these aren't enough to outweigh the positives for Citigroup, in my view.
While higher interest rates in the U.S. could cause mortgage applications to fall, Citigroup should be helped by higher earnings resulting from increased rates. Analysts think Citigroup's future over the next five years looks reasonably good, with a consensus projection of earnings growth of 9.5%.
Unfortunately for investors, Citigroup's dividend isn't as attractive as AbbVie's or Cisco's. Citigroup's dividend currently yields only 1.05%. However, the company's dividend has improved a lot since the financial crisis of 2008 and 2009. Citigroup appears to be in good shape for future dividend hikes.