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2 Boring Stocks I'd Actually Buy if They Fell Another 10%

By Sean Williams - May 28, 2018 at 11:31AM

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You might dismiss these brand-name stocks as yesterday's news, but they could be a steal, for the right price.

When the stock market is in full-fledged rally mode, investors' appetite for growth stocks and risk is seemingly unmatched. But when stock market corrections creep into the picture, boring stocks -- i.e., stocks that lack a lot of growth or flash -- tend to look a lot more appealing. That's because boring stocks often have healthy yields due to their more mature business models and slower growth rates.

At the moment, there are no shortage of boring, yet brand-name, companies, sporting attractive valuations based on some combination of price-to-earnings, PEG ratio, dividend yield, or another highly followed fundamental metric. But with these cheap valuations also (often) comes a serious growth concern or competitive challenge. After all, there is a reason why boring stocks are cheap in the first place.

An investor holding a red pen and circling ticker symbols in the financial section of a newspaper.

Image source: Getty Images.

Among this sea of boring stocks, two stand out to me as particularly attractive. Mind you, we're not at the point where I'd consider buying either of the following two stocks right now. But if they were to drop another roughly 10%, I would certainly be inclined to pull the trigger and add them to my portfolio for the long haul.

Procter & Gamble

As recently as October, consumer goods giant Procter & Gamble (PG 0.97%) was flying high, closing at a share price north of $93. Since then, it's been a veritable train wreck, with shares hitting as low as $70.73 on an intraday basis earlier this month. Weaker organic growth prospects, along with the admission that the retail ecosystem where P&G sells its products is changing, clearly has Wall Street concerned. Plus, as icing on the cake, a recently stronger dollar threatens to hurt multinationals like Procter & Gamble by reducing full-year EPS estimates. 

While not overlooking that P&G has issues to contend with, I don't foresee the 181-year-old company failing to adapt to a changing retail ecosystem. Yes, it's going to have to get a bit more aggressive with its brand-name product pricing, which is a recipe for weaker margins. Then again, it has numerous levers it can pull to counteract pricing pressures. This includes working to make its existing operations more efficient, as well as reducing its digital and advertising budget, which is the largest in the industry by a long shot. When all is said and done, I wouldn't be surprised if operating efficiencies more than cancelled out any product pricing pressures within, say, two years.

An assortment of Procter & Gamble's consumer products.

Image source: Procter & Gamble.

Procter & Gamble also has the ability to use its cash flow to generate growth and/or create value for shareholders. In April, the company announced that it was acquiring Merck KGaA's Consumer Healthcare business, which sells over-the-counter (OTC) pharmaceutical products, for $4.2 billion. Given that the elderly population continues to grow in the U.S. and abroad, this acquisition should provide P&G with an avenue to more robust growth rates. 

There's also the fact that P&G sells products that can, in many instances, be considered a basic need good. Regardless of whether the U.S. economy is booming or in contraction, consumers needs toothpaste, detergent, and other household items. That continuously keeps the ball in P&G's court.

At the moment, Procter & Gamble's forward P/E of 16 would represent a low-water mark since the Great Recession, and its dividend yield of 3.9% is nearly double that of the S&P 500. If this stock were to fall another 10%, I believe it'd be too much of a bargain to pass up, even if cost-cutting and share buybacks are likely to be its primary growth driver over the next six to 12 months.

A woman holding a tablet up to a wall filled with digital cloud data.

Image source: IBM.


Big Blue, as IBM (IBM 1.11%) is best known, is certainly not a stock in Wall Street's good graces at the moment. Even buy-and-hold specialist Warren Buffett caved in and sold his entire stake in the tech giant during the first quarter after IBM struggled to turn its business around. 

The primary issue for IBM is that it's still far too reliant on its legacy operations. This isn't to say that IBM hasn't jumped into cloud computing, or thrown quite a bit of research and development capital at various blockchain projects. The problem is that IBM was late to the game with cloud computing, and it's been playing catch-up ever since.

The good news is that IBM recently put an end to what had been a 22-quarter streak of declining revenue, which again was the result of weakness in its legacy operations. On a trailing-12-month basis, as of its most recently reported quarter, IBM's cloud computing revenue had grown by 20% on an organic, constant currency basis. More importantly, cloud revenue now accounts for about 20% of the company's annual sales -- and this figure is expected to steadily grow over time. 

Blockchain nodes and binary code surrounding a digital outline of the continents.

Image source: Getty Images.

As noted, IBM is also jumping headfirst into blockchain development. For those unaware, blockchain is the digital, distributed, and decentralized ledger underlying cryptocurrencies like bitcoin. The belief is that blockchain could prove pivotal in expediting the movement of money, as well as in non-currency situations, such as the real-time monitoring on supply chains. IBM is pretty much leading the way among brand-name companies when it comes to blockchain development, having already spearheaded a blockchain project involving a dozen banks in the South Pacific, as well as announcing a shipping solutions joint venture with shipping giant A.P. Moller-Maersk. Though blockchain could take years to mature, IBM won't be late to the party if it does turn out to be the next greatest thing since sliced bread. 

Meanwhile, IBM has its usual bag of tricks at its disposal. It can cut costs, increase its dividend, and repurchase its common stock in an effort to create shareholder value. While top-line growth will likely be nothing to crow about for another year or two until cloud revenue becomes an even bigger component of aggregate sales, the company's 4.4% yield and forward P/E of just 10 may provide enough intrigue for value investors to wait things out.

As for me, I'm waiting for one more leg down in IBM's stock. If we could get that yield to nearly 5%, and push its forward P/E down to 9, consider me in.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

International Business Machines Corporation Stock Quote
International Business Machines Corporation
$134.01 (1.11%) $1.47
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$146.67 (0.97%) $1.41

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