The S&P 500 index has surged to new highs in recent weeks, but some companies are not getting the love they deserve.
Hasbro (HAS -0.65%) trades at a modest valuation despite the catalyst for a return to growth this year. The toymaker has bright prospects within its digital gaming and entertainment segments.
It's a different story with eBay (EBAY 2.93%), which experienced a resurgence in its marketplace business during the pandemic. Despite eBay's soaring stock price, the current valuation leaves room for more upside if eBay's momentum persists, as management's near-term guidance seems to indicate.
Let's find out a bit more about these two value stocks that can make you richer in April.
1. Hasbro: Hoping to return to growth as the economy reopens
Hasbro is one of two leading makers of toys and games in the U.S., along with Mattel. Some of its top brands include Transformers, My Little Pony, Play-Doh, G.I. Joe, and Nerf, and it also produces classic table-top games like Monopoly, The Game of Life, and Magic: The Gathering.
Sales of Monopoly and Magic: The Gathering had their best year ever last year, but across the business, total revenue fell 8% in 2020. Even though Hasbro saw strong growth in the e-commerce business, retail store closures and production delays on its film and TV projects were too much to overcome.
The stock dropped 11.4% last year and is still trading below its 2019 high, but the share price may not stay at this lower level for long. The consumer products business should return to growth as the economy reopens, and initiatives in digital games, film, and TV could raise the toy maker's stature in the broader entertainment market.
Hasbro recently launched Magic: The Gathering Arena on mobile devices, as part of its strategy to spread its gaming brands to more platforms. The company's Wizards of the Coast and Digital Gaming segment grew revenue by 19.1% in 2020. The segment is now halfway to meeting its goal of doubling 2018 revenue by 2023.
Meanwhile, Hasbro has more than 200 projects underway across more than 30 of Hasbro's brands for film and TV. It is putting serious investment behind these projects, with two to three motion pictures and three to four TV shows planned for release by 2023 on major platforms, including Netflix, which ensures they reach a massive audience.
The Entertainment segment generated nearly $1 billion in revenue last year (less than 20% of Hasbro's business), but the 2019 acquisition of Entertainment One, which is taking the lead on these projects, positions Hasbro for long-term growth in the broader entertainment world.
Hasbro has rewarded investors with satisfactory returns and dividends for decades. But with the initiatives underway in games and film, it appears to be in an even better position to deliver returns coming out of the pandemic. The stock sports a modest price-to-free cash flow (P/FCF) ratio of 15 and pays an above-average dividend yield of 2.91%.
2. eBay: Transitioning to a new payment system for more growth
eBay's growth was slowing to a snail's pace in 2019, but then the pandemic hit. Traffic on the marketplace reached "unprecedented" levels, as CEO Jamie Iannone described on the fourth-quarter earnings call. The stock price is up 79% over the last year, but management has made major changes to the marketplace business that could result in better growth over the next few years.
It's transitioning its sellers to a new payment system that will offer buyers more payment options and potentially lead to higher conversion in the marketplace. Management expects the transition to deliver $2 billion in incremental revenue and $500 million in operating income starting in 2022.
Advertising is another big opportunity to drive incremental revenue growth. Sellers are seeing a double-digit sales increase when using promoted listings. For 2020, promoted listings grew 86% and translated to $1 billion in advertising revenue. eBay expects advertising revenue to continue outpacing gross merchandise volume for the foreseeable future.
eBay is also unlocking value in non-core assets. It is in the process of selling its Classifieds business to Adevinta (OB: ADE), a leading online classifieds marketplace based in Norway. In return, eBay will receive $2.5 billion in cash and a large equity stake in Adevinta. With this move, eBay bolsters its balance sheet and gains upside from the future growth in Adevinta's business. It also sold StubHub last year for $4 billion in cash and is currently exploring options for its Korea business.
Investors love the combination of growth initiatives, strong operating results, and transactions that beef up eBay's financial position. Management is guiding for revenue to grow between 38% to 40% year over year in the first quarter. That makes the stock look attractive at current levels, trading at a P/FCF multiple of 24 while offering a dividend yield of 1.02%.