The market's run-up over the last four months hasn't left a lot of stocks in what investors usually consider value range. P/E ratios (and price to sales ratios) are astronomical and this is at a time when GDP is dropping like a rock and sales are falling for a lot of companies.
Even with that backdrop, I think there are values on the market and they may not be as far away as you think. Well-known names like Target (NYSE:TGT), Verizon (NYSE:VZ), and Brookfield Renewable Partners (NYSE:BEP) have a lot for investors to like, including some juicy dividends.
The COVID-19 pandemic has been an opportunity in disguise for Target. The company has spent years building out digital same-day services like the Drive Up business, in-store order pickups, and the same-day Shipt business. And they've all performed well in the last few months. In the first quarter of the fiscal year, management said that same-day services grew 278% versus a year ago and were up to 5% of the company's 10.8% comparable sales growth.
You can see below that revenue growth has accelerated early in 2020 and that should continue as the year goes on. Net income has lagged, but that's in large part due to investments the company has made in staffing and health and safety initiatives in stores.
Target's current P/E ratio of 23 may be higher than it seems if elevated sales from same-day services become a staple for consumers. Long-term, this is one retailer well positioned for revenue and earnings growth and may be a surprise winner coming out of the pandemic.
Verizon is one of the least appreciated companies on the market because it's not a high growth stock, despite being such a central service for millions of Americans. In that respect, it's a little like a utility stock and like utilities, it comes with a high dividend yield of 4.3%.
What I like about Verizon's business long-term is growth potential from 5G and the opportunity for margin expansion now that its low-cost competitors T-Mobile and Sprint have merged.
5G networks are just starting to roll out but they give Verizon the opportunity to reach into the home with a wireless home router. And it'll lead to millions more connected devices, which should increase revenue long-term.
There aren't a lot of stocks on the market with a P/E ratio of 12 and a dividend yield of 4.3%. And to get a company an integral wireless company like Verizon at that price is absurdly cheap in my eyes.
Brookfield Renewable Partners
The energy industry is changing rapidly as fossil fuels are replaced by renewables and EVs disrupt transportation. But what isn't changing is demand for renewable energy assets like hydro, wind, and solar farms that Brookfield Renewable Partners owns.
The company has 19,300 megawatts (MW) of capacity at a whopping 5,288 power generating facilities around the world. And cash flow from those assets allows it to pay a solid dividend yield of 4.6%. But what's great is that management keeps enough excess cash to project organic dividend growth of 5% to 9% annually.
A 4.6% dividend yield is great in today's market, but knowing that Brookfield Renewable Partners has the ability to grow that dividend long-term is what makes this a cheap stock. And in a volatile energy industry it should be a top pick for any energy investor.
Cheap stocks in an expensive market
Target, Verizon, and Brookfield Renewable Partners may not be the kind of stocks that make headlines in a market like this, but long-term I think they're great values and set up to succeed. For investors looking for absurdly cheap stocks, these three are a great place to start.