Investors are wise to check out the bargain bin of stocks when they can. Many times, fickle investors will offload a company after a few bad quarters without taking a good look at its long-term prospects. That can sometimes lead to great buying opportunities for those who are playing the long game.
We asked a handful of Motley Fool contributors for a few stocks that they think are both cheap and great deals right now, and they came back with Wells Fargo (WFC +0.90%), Walt Disney (DIS 0.82%), and Apple (AAPL +2.65%). Read on to find out why.
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This bank is downright cheap
Jordan Wathen (Wells Fargo): The scandals coming out of Wells Fargo have generated a lot of noise, but I'm not convinced they have completely tarnished its long-term earnings power. Shares trade at about 12 times consensus earnings estimates, a price that I believe will prove to be a bargain.
What makes Wells Fargo so attractive is the quality of its retail deposit franchise, which helped it source an average of $748 billion of deposits in the first quarter of 2018. As "America's largest community bank," the company ranks No. 1 or No. 2 by deposits in 22 U.S. states, giving it the scale to compete aggressively against smaller regional and super-regional banks for high-quality loans across the country.
And while the headlines might imply that Wells Fargo is losing goodwill with customers, the numbers fail to show it. At its recent investor day, the San Francisco-based bank said that primary consumer checking attrition was the lowest in five years, suggesting that all the retail customers who might leave the bank have already done so.
An investment in Wells Fargo won't be an overnight winner. Investors are discounting it for the risk that it could be several quarters, perhaps even years, before regulators allow it to grow again. But at roughly 10 times earnings, Wells Fargo is priced as if it will forever be constrained to a $2 trillion balance sheet. I'll take the over.
Don't count out the House of Mouse
Danny Vena (Walt Disney): Based on the company's stock performance over the last three years, you'd think that Disney was on death's doorstep. While the broader market has gained about 27%, Disney has fallen more than 5%, and currently trades at an absurdly cheap 13 times trailing earnings.
While it's true the company's media networks segment -- its biggest moneymaker -- has been in secular decline, there's plenty of gas left in Disney's tank.
The phenomenon of cord-cutting has wreaked havoc on cable networks in general and Disney in particular. ESPN, the company's flagship sports network, commands a higher percentage of the average cable bill, so it stands to reason that declining cable subscribers would hit Disney more than most.
That said, it's important to remember that the media networks segment is becoming a smaller contributor to Disney's top and bottom line.
|
Fiscal Year |
Media Networks Revenue |
Percent of Total Revenue |
Media Networks Operating Income |
Percent of Total Operating Income |
|---|---|---|---|---|
|
2013 |
$20.36 billion |
45% |
$6.82 billion |
64% |
|
2017 |
$23.51 billion |
43% |
$6.90 billion |
47% |
Data sources: Disney's financial releases.
While Disney's cash cow continues its evitable but very slow decline, other segments are ramping up their contributions.
The company's film studios -- which include Marvel, Lucasfilm, Pixar, and Disney -- have had a string of blockbusters that have ruled at the box office. Avengers: Infinity War and Black Panther have grossed $1.7 billion and $1.3 billion, respectively. Last year's Star Wars: The Last Jedi and Beauty and the Beast combined to generate $2.6 billion in ticket sales.
The company is also set to step firmly into the streaming market, with its recent release of ESPN+ and next year's launch of its Disney-branded streaming service.
With all that going for it, Disney isn't going to be dirt cheap for much longer.
A tech giant you can buy for a song
Chris Neiger (Apple): Investors looking for a great buying opportunity in the tech sector right now should give strong consideration to the iPhone maker. Apple's shares trade at just 14 times the company's forward earnings, and despite some investors' bearish sentiment toward the stock right now, the company still has lots of growth opportunities.
For example, in the second quarter, Apple saw its services revenue (which includes Apple Pay, Apple Music, and the App Store) jump 31% from the year-ago quarter to $9.1 billion. The company's services segment now accounts for 15% of its top line, up from 13% a year ago. Apple CEO Tim Cook said last year that he wants the company to double its services revenue by 2020, and the most recent quarter helps put the tech giant closer to that goal.
Apple bears have pointed to a slowing smartphone market as a reason to be worried about the company's future. But investors need to be careful not to get hung up on some analysts' iPhone sales predictions.
For instance, analysts were expecting iPhone sales of 53 million in the second quarter, while Apple delivered 52.2 million. But iPhone revenue still grew by an acceptable 14% year over year, total revenue was up 16% year over year, and Apple's diluted earnings per share popped 30% to $2.73. The result of the strong quarter made the company's shares start moving back up once again. The company's strong overall performance in the second quarter -- and the resulting share-price gains -- shows how silly it can be to bet against Apple's stock based on what a few analysts are predicting.
Apple is continually proving its skeptics wrong and delivering strong sales, earnings, and share-price growth for its investors. That's why investors who are looking for a cheap stock right now would be wise to pick up Apple's shares at their current discount.
