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These 3 Value Stocks Are Absurdly Cheap Right Now

By Matthew DiLallo - Dec 5, 2020 at 9:19AM

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While the market might be near an all-time high, these stocks are still cheap.

The stock market hit a milestone number last month as the Dow Jones Industrial Average topped 30,000 points for the first time. That's quite a feat, given the significant disruption to the global economy this year due to the COVID-19 outbreak. With so many stocks recently hitting new highs, it's getting harder for value investors to find bargains.

However, there are still some great bargains out there. Three that are currently trading at insanely cheap valuations these days are pipeline operator Williams Companies ( WMB -0.51% ), healthcare REIT Medical Properties Trust ( MPW 0.28% ), and diversified REIT W.P. Carey ( WPC 0.01% ).

A sale sign on a yellow paper price tag against rustic wood.

Image source: Getty Images.

A bottom-of-the-barrel valuation

Conditions in the oil market have been brutal this year. Oil companies had to shut down wells and halt their drilling programs because of crashing crude oil prices. That impacted the volumes flowing through pipelines.

However, the downturn didn't have much effect on Williams Companies' cash flow because most of its customer contracts cover capacity, not volumes. Because of that, it's still on track to generate between $2.50 to $2.83 per share of cash flow. That's enough money to cover its 7.6%-yielding dividend and nearly all of its growth spending.

With Williams' stock recently trading at around $21 a share after sinking 11% this year, it sells for less than eight times cash flow. That's ridiculously cheap as it assumes the company's cash flow will decline in the future. That seems unlikely, considering that cleaner-burning natural gas -- Williams' primary focus -- will likely remain vitally important to fueling the global economy, even as it transitions to cleaner sources.

A healthy discount for this hospital owner

Shares of Medical Properties Trust have lost about 7% of their value this year. While the COVID-19 outbreak has impacted the hospital sector, the company has collected nearly all the rent it billed this year. Add that to its success in securing $3 billion of new investments, and its cash flow surged an outstanding 24% during the third quarter. That has it on track to generate between $1.68 to $1.71 per share of cash flow this year.

To put that into perspective, shares of the REIT currently sell for around $19.50 per share. That implies that it fetches about 11.5 times its cash flow. That's dirt cheap for a REIT since most trade at a mid-teens multiple of cash flow. There's no reason for the discounted valuation since the company has a solid balance sheet and a conservative payout ratio for its 5.5%-yielding dividend.

Solid exposure to this hot sector without the premium price tag

Diversified REIT W.P. Carey is down nearly 12% this year. That slump comes even though the company has collected 98% of the rent it billed this year. While it has some exposure to sectors hit hard by COVID-19, like retail and restaurants, 47% of its portfolio are industrial properties and warehouse spaces.

That's important to keep in mind when considering the company's valuation. The REIT currently expects to generate between $4.65 to $4.75 per share of cash flow this year. With its stock recently around $70 a share, W.P. Carey sells for about 15 times cash flow.

That might seem average until we look at industrial REIT valuations. Most companies focused on those properties trade for more than 25 times cash flow due to the rapid growth of e-commerce, which is driving the need for more warehouse space. Thus, W.P. Carey is a cheaper way to gain some exposure to that sector. Meanwhile, it complements its low valuation with a high dividend yield of around 6%.

Pockets of value in today's red-hot market

While most stocks have rallied this year, Williams Companies, Medical Properties Trust, and W.P. Carey have lagged because they have exposure to industries hard hit by the pandemic. However, while the outbreak impacted many companies in those sectors, it didn't affect the cash flow of this trio. Because of that, they trade at ridiculously cheap prices these days.

This makes them great buys for value investors who are getting the added benefit of locking in some high-yielding income streams. That enables them to get paid well while they wait for these valuations to recover.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

W. P. Carey Inc. Stock Quote
W. P. Carey Inc.
$77.35 (0.01%) $0.01
The Williams Companies, Inc. Stock Quote
The Williams Companies, Inc.
$27.11 (-0.51%) $0.14
Medical Properties Trust, Inc. Stock Quote
Medical Properties Trust, Inc.
$21.36 (0.28%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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