A healthy retirement portfolio has a mix of investments that cover different asset classes and industries. It's also a good idea to include both growth and value stocks, since these two groups rarely move in sync with each other.
Below, Motley Fool investors highlight three attractive investments that appear cheap compared to rivals and the broader market. Read on to see why eBay (NASDAQ:EBAY), Cirrus Logic (NASDAQ:CRUS), and Duke Energy (NYSE:DUK) could make great value purchases for your retirement account.
A profitable e-commerce player
Demitri Kalogeropoulos (eBay): eBay isn't growing nearly as quickly as its rivals, which helps explain why the online marketplace is valued at such a discount to companies like Amazon. Still, the e-commerce specialist is meeting the aggressive goals that management set at the start of 2017. In fact, sales growth recently sped up to its fastest rate in more than three years as eBay expanded the ranks of its active buyer pool.
eBay has a light operating model compared to Amazon and major physical retailers like Wal-Mart. It operates as more of a middleman between buyers and sellers without maintaining its own shipping and fulfillment network, and that limits its growth potential.
That approach is highly profitable, though. eBay generated $1.6 billion in earnings through the first three quarters of 2017 on just $7 billion of sales. That 23% profit margin is well ahead of the 2% that Amazon and Wal-Mart enjoy.
eBay generates tons of cash, too, with free cash flow reaching $720 million last quarter, or 30% of sales. In the years ahead, executives will need to direct some of those earnings toward ensuring that its buyers don't bolt to Amazon or other e-commerce giants. But there should be plenty of resources left over for retirees to collect direct cash returns including stock buybacks and, eventually, a healthy dividend.
A high-yield value utility
Neha Chamaria (Duke Energy): I frequently recommend utility stocks for retirement portfolios, and there's nothing better than when a top utility stock is also trading at value prices. Duke Energy is one such stock retirees can consider now.
As one of the largest utilities in the U.S., Duke's revenue is highly regulated, which eliminates volatility in its top and bottom line. This is reflected in the company's incredible dividend streak: Duke hasn't missed a quarterly dividend in 91 years. What matters is whether the company can continue to grow its profits and dividends, and the answer appears to be a resounding yes.
To begin with, Duke is aggressively modernizing its grid to improve efficiency. At the same time, it is pumping billions of dollars into renewable energy projects, primarily solar and wind, to keep up with the changing energy landscape and earn higher margins than what its traditional utility business can earn. For instance, Duke expects its adjusted EPS from commercial renewables to grow 8%-12% between 2017 and 2021. Backed by its growth moves and inroads into clean energy, Duke is confident it'll be able to grow its dividends annually by 4%-6% through 2021.
At 28 times trailing earnings, Duke may not look like a bargain. But when you consider the stock's forward price-to-earnings ratio of only 18, dividend yield of 4%, and dividend growth potential, Duke is a great value stock to consider today for your retirement.
Cheap Cirrus Logic stock could go sky-high
Rich Smith (Cirrus Logic): The last time I picked a "value stock perfect for retirement" for this roundtable -- Copart -- the stock ended up rocketing 40% in six months. So let's see if we can catch lightning in a bottle again, why don't we?
I chose Copart based on the simplest of value stock picking strategies, by searching for a stock with a low P/E relative to its projected growth rate (also known as the PEG ratio strategy), and a reasonable story supporting that growth. Searching for similar investments today, my eye is drawn to Cirrus Logic (NASDAQ:CRUS), a maker of integrated circuits for everything from smartphones to smart watches to virtual reality headsets.
Priced at just 12.4 times earnings, Cirrus Logic sells for a steep discount to both other semiconductor stocks (which average P/E ratios north of 22) and to the stock market as a whole, which costs more than 25 times earnings. Yet analysts who follow Cirrus predict the company will grow its earnings at roughly 15% annually over the next five years.
Granted, Cirrus stock doesn't pay a dividend -- which may dissuade some who are investing for retirement from considering in it. Still, with an enviably low PEG ratio of just 0.8, I think Cirrus Logic stock is priced cheaply enough that if you can afford to wait a bit, and don't need dividend income right this moment, this one will pay off in the not-too-distant future.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitrios Kalogeropoulos has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AMZN and eBay. The Motley Fool recommends Cirrus Logic and CPRT. The Motley Fool has a disclosure policy.