The price you pay for a stock can make the difference between whether you make a good return on your investment or incur a loss. Bargains can be hard to find, especially amid a strong bull market such as ours -- but taking the time to hunt down stocks that are trading at cheap prices can help accelerate your portfolio's gains over the long term.
CVS Health (CVS 3.71%) and Oracle (ORCL -1.08%) are two stocks trading at relatively modest multiples to earnings. It doesn't hurt that they both pay decent dividends. Let's see why investors can expect solid returns over time if they scoop up shares today.
1. CVS Health
Healthcare stock CVS hasn't exactly had a banner year in 2020, falling 8% while the S&P 500 is up around 14%. But the business itself isn't in trouble; through the first nine months of 2020, sales of $199.2 billion are up 4.9% year-over-year, while profits of $6.2 billion have risen by 27.2%. All of the company's key segments, including pharmacy services, retail, and healthcare benefits are doing better than they were over the same period last year.
CVS also pays its investors a dividend that yields 2.9% -- higher than the S&P 500 average of around 1.8%. But that hasn't been enough to get investors to buy the stock. Part of the reason is that vaccine stocks like Moderna are looking like much hotter buys, and companies generating double-digit growth amid the coronavirus pandemic are more appealing investments than stocks like CVS, which is only growing its sales at a rate of around 5% this year.
There are also concerns about growing competition from Amazon, which launched its pharmacy business in November, allowing customers to receive prescriptions quickly and easily. And its Prime members can save up to 80%, even without insurance coverage. However, CVS is focusing on developing its in-store experience, with a plan to convert 1,500 stores into HealthHubs by the end of next year, which will offer customers more services, including those that can help in the treatment of chronic conditions.
The next few years could be a big test for CVS to see how people respond to the new HealthHubs, and whether they're able to draw in more customers and keep the Amazon threat at bay. If the model works, the business could boom, and its share price today would look dirt cheap. Currently trading at just 11 times earnings, CVS stock is well below the 24 price-to-earnings (P/E) ratio at which the average stock on the Health Care Select Sector SPDR Fund trades.
While it's not a risk-free investment, its dividend, low valuation, and potential for growth make CVS a stock that could be worth taking a chance on today.
Another good option for investors to consider is Oracle. The company is in the cloud business, and right now it's arguably one of the cheaper tech stocks available. In the six-month period ending Nov. 30, Oracle's top line of $19.2 billion was up a modest 1.8% year over year. It's not the explosive growth that tech investors normally expect, but CEO Safra Catz noted that during the second quarter and period ending Nov. 30, two of the company's key enterprise applications -- Fusion and Netsuite -- achieved sales growth of 33% and 21%, respectively.
And if Oracle's deal with Walmart to acquire TikTok's U.S. operations go through, it could generate much more sales and earnings growth in the future. Under the proposed deal, Oracle would own a 12.5% stake in the Chinese video-sharing platform. One estimate projects that TikTok's monthly active users will top 1.2 billion next year. By comparison, social media giant Facebook reported 2.74 billion monthly active users in its most recent earnings report, released on Oct. 29 for the period ending Sept. 30.
Although it's unclear if the deal will end up going through, if it does it could make Oracle a much hotter buy than it is today. At a P/E ratio of just under 20, shares of Oracle look like a bargain when compared to the Technology Select Sector SPDR Fund, where the average stock trades at more than 33 times earnings.
Oracle also pays investors a modest 1.5% dividend yield, which can be a great way to pad the stock's overall returns. With a solid cloud-based business and the outside chance that it could land a solid minority interest in TikTok, Oracle could be an underrated stock to buy right now that you won't need to pay a high price for.