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2 Bargain Stocks You Can Buy Today

By Jennifer Saibil - Feb 23, 2021 at 7:45AM

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They're not cheap, but they're undervalued.

It's hard to believe, for me at least, that it's been almost a year since the pandemic crashed the stock market in March 2020. The market has rebounded since the lows, and smart investors took advantage of the opportunity to grab shares of great companies that were pummeled along with the broader market. But with the stock market already at record highs, it doesn't look like there are too many bargains left to be had.

Many great companies have seen their share prices soar, even if sales haven't completely recovered. For example, Disney's sales were down 22% in the 2021 fiscal first quarter, but its share price is 44% higher than it was one year ago.

And "bargain" doesn't always mean cheap. There are many struggling businesses with low-priced stocks, which doesn't make them bargains, but rather value traps.

But here are two solid companies whose shares are underperforming their overall business and can still be purchased at bargain prices. 

A woman sitting in a room that she is remodeling.

Image source: Getty Images.

Old business, new management

Lowe's (LOW 2.10%) opened its first store in 1921, but it consistently plays second fiddle to home improvement leader Home Depot, which has only been around since 1978.

The second-spot company hired Marvin Ellison as CEO in 2018, and it made major strides in time for the pandemic. It outperformed its main rival, with comps increasing 30% in the third quarter ended Oct. 30.

Lowe's heavily invested in its digital infrastructure shortly before the pandemic hit, and digital sales grew 106% in Q3. It's also focused on its pro business, and comps increased more than 20% in that segment.

The company expects sales growth to slow as the coronavirus vaccines get rolled out and people begin to spend their money elsewhere, but its new and improved digital program should keep sales moving. Digital only represents 7% of total sales, and Lowe's made further investments over the past few months in its supply chain, including opening fulfillment centers and distribution centers to handle digital orders. It's also in the process of renovating store layouts to be project-driven instead of product-driven, which Ellison believes will form a more intuitive shopping experience for customers, and especially pros.

Lowe's in the exclusive club of Dividend Kings, which means it's increased its dividend annually for over 50 years. It's not a super-high yield at 1.32%, but it's consistently growing and stable. Lowe's stock gained 80% over the past three years and trades at a reasonable 24 times 12-month trailing earnings. But sales and earnings are likely to keep growing, and so is share price.

A person paying at a hotel.

Image source: Getty Images.

Old company, new business

American Express (AXP 2.56%) has been around since 1850, but it has modernized with technology to feed its uncompromising dedication to customer service. 

Revenue dropped during the pandemic, falling 29% in the second quarter, and the company performed worse than similar companies since its customers typically spend a large amount on travel and entertainment, which plummeted during lockdowns. T&E accounted for 28% of total spending in the fourth quarter of 2019, but only 12% in Q4 2020.

On the other hand, its more affluent clientele can still afford to spend in challenging circumstances, and non-T&E spending has already surpassed pre-pandemic levels. Revenue improved to an 18% decrease in the fourth quarter ended Dec. 31, and American Express posted income throughout the year, including $1.76 in Q4, a 13% decrease year over year.

The financial services company, which is known for its credit cards, also offers small business solutions for merchants, including digital solutions through its financial technology platforms. Its cards have won numerous awards, and customers shelled out $1.2 billion in annual fees for the privilege of carrying an American Express card in the fourth quarter, a 13% year-over-year increase that accounts for 13% of total revenue.

It's poised to see high growth when the pandemic recedes and customers take care of their pent-up travel demands. This may take some time, but that's why the stock is a bargain right now.

American Express maintained its dividend throughout the pandemic, which also yields 1.32%. Its stock price rose 35% over the past three years, and shares are trading at 35 times trailing 12-month earnings, which is not super cheap. But that price reached new heights right before the pandemic knocked it down, and as the business recovers, it should soar to new heights again.

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Stocks Mentioned

Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
$199.63 (2.10%) $4.10
American Express Company Stock Quote
American Express Company
$169.60 (2.56%) $4.23

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