With half the country stuck at home quarantining, working from home, and trading stocks for free on Robinhood, 2020 was a great year to invest in profitless green energy, electric car, and similar "tech stocks." No matter how bad the company, these stocks just went nowhere but up.
As 2021 gets under way, though, and the economy gets back to "normal," it's time to settle down a bit, and get back to basics with your investing.
In short, it's time to start thinking about buying some value stocks. If 2020's tech rally has given you $5,000 or so to invest, and you're looking for a safer place to stash it, Vista Outdoor (NYSE:VSTO), PulteGroup (NYSE:PHM), and MarineMax (NYSE:HZO) are three stocks that offer a great balance of value, growth, and strong balance sheets to keep your money secure in the New Year.
2021 got off to a great start for gun stocks. With Democratic majorities in both houses of Congress, and a Democrat in the White House, worries over tightened gun regulation are already resulting in increased sales of guns and ammunition in a "buy before they outlaw it shopping spree." Shares of the two best-known brands, Sturm, Ruger and Smith & Wesson, are roaring ahead -- but if you ask me, ammunition company Vista Outdoor offers an even better value.
Unprofitable on the surface, with trailing GAAP earnings of negative $6 million, a closer look at Vista Outdoor's cash flow statement reveals that this company is a fountain of cash. Over the past 12 months, Vista has generated positive free cash flow (FCF) of $267 million, valuing its stock at just 6.1 times FCF. Even factoring in net debt, I calculate the company's enterprise value-to-FCF ratio at a low 7.5x. Plus, for price-to-earnings (P/E) investors, the stock's $28 share price today is just 8.8 times the $3.18 per share that analysts expect Vista to earn this year.
Once that P/E turns positive this year, I expect a lot of investors will discover that Vista stock suddenly looks cheap again -- and buy.
And speaking of cheap, check out shares of PulteGroup. America's No. 3 homebuilder is only trading for 8.8 times trailing earnings today, but it could look even cheaper tomorrow.
Coming out of a recession, with interest rates near all-time lows, analysts are forecasting a strong housing market this year -- and a strong year for Pulte. 2021 forecasts show earnings growing 17%, and longer-term forecasts have the company averaging 12% annual profits growth over the next five years, according to data from S&P Global Market Intelligence. If Pulte nails the numbers it's expected to produce, the stock could cost as little as 7.4 times this year earnings, today.
Turning from income statement to balance sheet and cash flow statement, Pulte carries a bit of debt -- $3.1 billion -- but mostly offsets that with $2.1 billion in cash. Meanwhile, more cash is coming in the door daily. Over the last 12 months, real free cash flow of $1.7 billion exceeded reported net income by 30%, making Pulte stock an even better bargain than first meets the eye.
Last but not least, a real pandemic play:
With quarantines still partly in effect and travel discouraged in the U.S., consumers aren't spending as much money on travel these days. Instead, they're creating their own vacations closer to home -- including by buying boats. At recreational boat retailer MarineMax, same-store sales surged 33% in last year's final quarter, and earnings more than tripled, delivering the company's highest revenue and earnings in history.
As 2021 gets under way (and earnings are due out next week), MarineMax is looking for more good things in the New Year. When last we heard, management was forecasting it would earn from $3.70 to $3.90 per share for this year, up another 15% from 2020. Analysts largely echo that prediction, and expect the sales and earnings strength to last into 2022 as well, with another 14% growth next year.
On the balance sheet, MarineMax carries only $37 million in net debt, and its free cash is flowing in nicely. Valuation-wise, MarineMax stock costs a bit more than the other stocks named above -- 12.4 times earnings. Relative to the anticipated growth rates, though, that's still comfortably below the standard price-to-earnings-growth (PEG) ratio of 1.0 that tells value investors they've found a bargain ahoy.