The S&P 500 trades at an average price-to-earnings (P/E) ratio of almost 40, making this an expensive market for value-conscious investors. But the good news is that some companies still buck the trend. Let's explore the reasons why MGM Resorts (NYSE:MGM) and Altria (NYSE:MO) could make slam-dunk investments because of their dirt-cheap valuations and exciting new growth drivers. 

1. MGM Resorts 

North America's online gambling marketplace is heating up, and MGM Resorts is a great way to bet on this trend. So far, the casino operator's pivot to sports betting is going as planned, and its relatively low valuation helps set it apart from high-flying competitors in the industry. 

Las Vegas Strip at night

Image source: Getty Images.

Analysts at Morgan Stanley expect 12 new U.S. states to legalize sports betting and online gambling in 2021. And north of the border, the House of Commons approved Bill C-218, which helps pave the way for legalized sports betting in Canada -- although the bill will have to enter a final phase of hearing with the Justice Committee before going into effect. 

MGM's management expects the combined sports betting and online gambling opportunity to be worth $20.3 billion by 2025, with a projected market share of 15% to 20%. So far, the BetMGM platform has performed as expected, with a 17% market share in states where it is active.

MGM is an alternative to high-flying rivals because of its low valuation. The company's core casino operations aren't profitable right now, so its trailing price-to-earnings (P/E) ratio isn't a useful metric. But with a price-to-sales (P/S) multiple of just 3.4, MGM is a relatively cheap way to invest in the sports betting opportunity, compared to rivals like DraftKings and Penn National Gaming which trade at 51 times and 4.3 times sales, respectively. 

2. Altria 

Some might say the U.S. tobacco industry is dying because of declining cigarette sales volume, but Altria paints a different picture. The nicotine giant managed to eke out growth in 2020 despite a challenging year with the coronavirus pandemic (which may have benefited the industry by boosting smoking rates). And its pivot to reduced-risk products could power continued expansion for years to come. 

Full-year revenue grew 4.2% to $6.3 billion as Altria offset a 0.2% decline in smokable products sales volumes with price hikes. The company generated a full-year adjusted earnings per share (EPS) of $4.36 -- giving the stock a P/E ratio of just 10, which is significantly lower than the S&P 500's average of 40, and lower than comparable tobacco giant Philip Morris, which trades for 17 times earnings.

Altria also boasts a dividend yield of 7.9% and has grown its payout for 51 consecutive years, making it a Dividend King

According to CEO Bill Gifford, Altria plans to pivot its business strategy to reduced-risk tobacco products, including oral tobacco, vaporizers, and non-combustible tobacco products that release nicotine through heating instead of burning. The company boasts a majority stake in Helix Innovations, the maker of on! nicotine pouches, and exclusive U.S. commercialization rights to IQOS -- a tobacco heating system said to release fewer harmful chemicals than traditional cigarettes.  

Altria also has an equity stake in vaping start-up JUUL Labs, which was impaired by $2.6 billion in 2020 because of regulatory challenges related to its marketing. However, the company recorded an unrealized gain of $100 million from its JUUL stake in the fourth quarter, which shows the downside may already be priced in. 

Bang for your buck 

MGM Resorts and Altria are two great companies trading at bargain prices as they pivot to new opportunities in sports betting and reduced-risk tobacco products. Both stocks could make welcome additions to your investment portfolio -- especially in this potentially overvalued market. 

 

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.