School is back in session, and fall is in the air. We're also only two-thirds of the way through 2021, and the S&P 500 is already up by an impressive 20%. Growth stocks that can thrive in the latest version of the "new normal" have been key contributors to the rally. On the flip side, many of last year's winners have become this year's losers.
We asked some Motley Fool contributors to point out some downtrodden value stocks they think are worth buying in September. They chose Univar (UNVR -0.89%), Royal Gold (RGLD -1.55%), and FedEx (FDX -1.94%).
Univar is an under-the-radar growth story
Lee Samaha (Univar Solutions): Growth companies come in all shapes and sizes. Some have soaring revenue expansion opportunities, while others can boost their earnings by good old-fashioned blocking and tackling. Specialty chemical distributor Univar is among the latter group, and that's likely to suit most value investors just fine.
As a reminder, the case for buying this stock rests on Univar's transformation into a focused specialty chemicals distribution business. The plan involves generating cost synergies from integrating Nexeo Solutions, which it acquired in 2019 for $1.2 billion. Meanwhile, management intends to streamline the overall business and use digital initiatives to gain market share in the highly fragmented market for third-party chemical distribution.
The ultimate aim of the so-called Streamline 2022 (S22) program is to reduce the company's debt leverage and produce an EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 9% by the end of 2022. To put this figure into context, Wall Street analysts expect Univar's revenue to grow from $8.3 billion in 2020 to $9 billion in 2022.
A run-rate EBITDA margin of 9% implies EBITDA of around $811 million, which would mean Univar would trade at an underlying enterprise-value-to-EBITDA multiple of just 6.8 going into 2023. That's a very cheap valuation.
Furthermore, given that management recently raised its 2021 adjusted EBITDA guidance to a range of $705 million to $725 million from a previous estimated range of $680 million to $700 million and reaffirmed its 2022 targets, it looks like Univar is well on track.
As such, its recent share price dip has created a good buying opportunity.
A value stock fit for a king or queen
Scott Levine (Royal Gold): Searching the market for inexpensive stocks? Look no further than Royal Gold, a leading royalty and precious metals streaming company. Its shares lost more than 10% from June through the end of August as the price of gold slid by more than 5%. Unrelated to a decline in the company's fundamentals, the decline in Royal Gold's stock price instead reflects the high correlation between the movements in the price of the yellow metal and the those of the stocks closely tied to gold production.
Although Royal Gold's stock price hasn't hit rock bottom, investors will still find that it's a bargain right now. At recent prices, it's changing hands at 18 times operating cash flow, a healthy discount to its five-year average multiple of 22. If assessing stocks on a price-to-earnings basis is more up your alley, Royal Gold still looks cheap at 24 times earnings, far below its five-year average of 80.
Unlike mining companies, which identify mineral-rich deposits and then develop the related mining projects, Royal Gold is a specialized financier. In exchange for providing capital up front to mining companies so that they can develop mines, Royal Gold receives rights to purchase a percentage of the metal those mines produce at a discounted price. The company can thus benefit from the rising prices of gold and other precious metals while avoiding the risks associated with developing or operating the projects.
Last month, Royal Gold reported strong earnings for its fiscal Q4 2021 that contributed to a record-breaking year in multiple regards. For one, both the top- and bottom-line results for the fiscal year (which ended June 30) were all-time highs: $616 million and $303 million, respectively. Operating cash flow of $407 million set another company record. And for those who might be skeptical about the company's balance sheet, its net cash position of $222 million should allay any fears.
Forward-looking investors who are interested in gaining exposure to precious metals will find it worth their while to dig into Royal Gold right now since shares are experiencing a late-summer sale. While Royal Gold has royalty and streaming interests on 41 producing properties, its future looks lustrous with a portfolio that includes royalty and streaming interests on 146 properties in various stages of development.
An e-commerce titan that's too cheap to ignore
Daniel Foelber (FedEx): The stock price of package delivery giant FedEx has been slipping over the last few months. The company's guidance for its fiscal 2022, which will end on May 31, 2022, failed to impress Wall Street.
Yet it had arguably the best year in its history in fiscal 2021, posting record-high revenue and operating income from its FedEx Ground, Express, and Freight units. For fiscal 2022, the company is forecasting more than $90 billion in revenue and between $20.50 to $21.50 in diluted earnings per share before adjustments, compared to $84 billion revenue and $19.45 in non-adjusted diluted EPS in fiscal 2021.
Year-over-year revenue growth of 7% and earnings growth of roughly 8% wouldn't be too shabby, but it looks uninspiring compared to the monster growth FedEx notched in fiscal 2021.
That FedEx doesn't expect to be able to sustain last year's torrid growth rate as the economy returns to normal shouldn't come as a surprise. While they were largely staying at home to avoid exposure to COVID-19, many consumers took much more of their shopping online, which directly benefited FedEx's performance. The issue of how next year will stack up compared to last year is less important than the big picture -- which is that the business is doing well and should continue to for years. Management also expects another monster holiday season, but could face a labor crunch and logistical challenges. Those are risks worth bearing in mind. But even so, the recent sell-off has pushed FedEx's valuation into discount territory.
FedEx stock now sports its lowest P/E ratio in five years. And considering that management expects it will be able to grow earnings and revenue despite the headwinds, this industrial stock seems like a worthwhile buy for investors searching for bargains in today's hot market.