It's hard to put a price tag on the value of a brand. Forged over decades (or even generations), a company's brand can make the difference between surviving through difficult times or going under.
Here are two value stocks that are trading at bargain prices due to the coronavirus pandemic and other company-specific challenges. These stocks will bounce back stronger than ever because of their world-class brands and robust business models.
The first pick is Walt Disney (NYSE:DIS), a blue-chip entertainment brand that has been clobbered by the pandemic. The second pick is Altria (NYSE:MO), a tobacco giant that has seen its share price tank after a series of poor strategic investments.
Both stocks are down year to date -- but look poised for a massive comeback.
1. Walt Disney
With shares trading at $115 at the time of writing, Disney stock is well off its 52-week high of $153.41. The company has missed out on the wider market's recovery after the crash in February because its business is particularly vulnerable to the effects of COVID-19.
Disney's amusement parks are shuttered, its cruise line is grounded, and many of its movie releases are postponed until enough theaters reopen. These challenges have pushed the stock deeper into value territory, making it a good way for investors to bet on a long-term rebound in the tourism and entertainment industry.
While the United States is still deep in the pandemic, several countries in Europe and Asia have made impressive progress in controlling the disease, which is good news for Disney's international properties.
Management is making progress toward normalizing Disney's parks and experiences segment in the near term. The company has opened all four of its Walt Disney World theme parks (with safety restrictions such as social distancing and cashless pay), and it has unveiled new cruise itineraries for the fall of 2021. America's Centers for Disease Control and Prevention (CDC)-mandated no-sail order is set to expire on Sept. 30 -- but it could be extended further.
Altria is a tobacco giant famous for its Marlboro brand of cigarettes. The company has seen its share price tank by around 17% year to date after a series of disastrous strategic investments into vaping start-up JUUL Labs and CBD company Cronos Group (NASDAQ:CRON). Both companies have seen their values tank since Altria initiated its position, leading to massive non-cash impairment charges in fiscal 2019 and the first quarter of fiscal 2020.
The good news is that Altria has written down these investments aggressively -- $8.6 billion out of $12.8 billion for the JUUL Labs stake and around $1.81 billion for the Cronos stake (around the total value of the deal in 2019). This means the downside from these assets is largely priced in, and investors shouldn't expect any unpleasant surprises going forward.
Altria generated $7.84 billion in cash from operating activities on its fiscal 2019 cash flow statement, and it paid out $6.07 in dividends that year, giving it a comfortable 77% payout ratio on operating cash flow. This looks high, but management aims to return around 80% of Altria's earnings to investors, and they are doing a good job, despite the near-term challenges.
On July 28, Altria declared a $0.86 share quarterly dividend, a 2.4% increase from its prior dividend of $0.84 per share. The company now boasts a forward yield of 8.17%, and it has grown its payout for 50 years in a row, qualifying it as a Dividend King.
Altria's and Disney's stock prices have fallen deeper into value territory because of the coronavirus pandemic and other company-specific challenges. However, both stocks look poised to bounce back because of their strong, blue-chip brands and compelling business models.