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3 Cheap Stocks That Help You Retire Early

By James Brumley – Oct 12, 2021 at 7:24AM

Key Points

  • Food will never fall out of favor; consumers must eat regardless of the cost.
  • Smaller retailers (offline as well as online) can compete with Amazon and Walmart by leveraging the benefits of their smaller, nimbler size.

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You don't have to pay a premium price for high-powered stocks with great long-term prospects.

Do you like bargains? Of course you do. Something worth owning is an even better buy at a lower price. It's true even when you're talking about stocks.

With that as the backdrop, here's a closer look at three great long-term stock picks that won't cost you a fortune. Each one is the kind of stock you can tuck away for a few years (or even a lot of years) and let grow into one of the key pillars of your retirement portfolio.

A man looking at a graph of a value/cost comparison.

Image source: Getty Images.

1. Conagra Brands

Trailing P/E ratio: 13.0  Forward-looking P/E ratio: 13.9

Like all of its peers, food company Conagra Brands (CAG 0.34%) is dealing with a couple of brutal cost headwinds. Not only are prices of food commodities like corn, chicken, and dairy goods on the rise (in part due to crimped supply chains), so too is the cost of delivering them. As CEO Sean Connolly admitted during last week's fiscal first-quarter earnings conference call, "The industry is navigating labor shortages, material supply issues, and transportation cost and congestion challenges."

Consumers can expect price increases on products like Marie Callender's meals and Orville Redenbacher's popcorn, both of which are brands owned by Conagra. A rebound effort from the stock was cut short in response to the warning.

Largely lost in all the noise, however, is that Conagra has historically been able to pass these rising costs along to its customers. Indeed, as Connolly also noted during the earnings call, "We didn't just acquire new consumers, we kept them." Internal data indicates lots of repeat purchases from customers who have to eat, and are facing similarly higher prices from Conagra's competitors.

And if nothing else, the company can use its size and reach to make several small cost-saving adjustments more effectively than many of its smaller food rivals can.

2. Target

Trailing P/E: 18.1  Forward-looking P/E: 17.8

Given that it competes with the likes of powerhouses Walmart (WMT -1.02%) and Amazon (AMZN -3.31%), it's surprising that Target (TGT -5.62%) has survived, let alone thrived. However, there's a simple explanation if you just look under the hood: Target uses its smaller size to its advantage by creating a more thoughtful, curated, well-groomed shopping experience.

Case in point: Target isn't considered the go-to venue for "cheap chic" apparel by accident. That's by design.

Recognizing there was a gap between trendy fashion and affordability, Target created its own clothing lines to meet the need, treating those private labels just like they were nationally branded goods. Now, the company owns a few dozen private labels, 10 of which are each doing more than $1 billion worth of annual sales, and four of which are franchises that each drive more than $2 billion in yearly revenue. All told, its in-house brands account for about a third of its business, not only boosting average margins, but also offering the retailer an opportunity to ensure it has enough appeal to draw consumers into its stores.

And that's just one aspect of how the company is capitalizing on the quality of its shopping experience when it doesn't have the same quantity of stores as its chief competitor. Cleaner, better-lit stores; attentive staff, in-store Starbucks kiosks, and Walt Disney toy exclusives are some of the other differentiators that allowed Target to drive industry-leading same-store sales growth of 8.9% during its second quarter of this year.

3. eBay

Trailing P/E: 21.3 Forward-looking P/E: 16.3

Finally, add online auction platform eBay (EBAY -2.79%) to your list of cheap stocks that could help you retire early.

It would be easy to see eBay as business that's past its prime, bested by Amazon and even Walmart's growing online presence. The eBay of today isn't yesteryear's marketplace, though. The company is evolving. Consumer-to-consumer auctions are still a key part of its ethos, but the company is also evolving in a way that capitalizes on more institutional opportunities. For instance, last month's launch of Inside Drop cultivates a community of sorts among the people using eBay to buy and sell collectible sneakers.

And that's just one example of how eBay, like Target, is using its smaller and more personalized feel to build a business that bigger players like Amazon can't. As another example, last year the company formalized its platform as a way for companies to sell factory-refurbished electronics back to consumers; eBay even facilitates a new factory-backed warranty. The company also unveiled a partnership with Bidadoo last month, offering the heavy-equipment reseller and auctioneer a means of using eBay's technology and reach.

All of these efforts are not only marketable, but are also tough for a mass-merchandising rival like Walmart or Amazon to mimic. eBay's strength has always been the ability to offer one-off custom listings of unique goods. Now the company is making more of the idea.

Future sales growth is apt to remain modest, with next year's top-line projection of 5% likely to be the longer-term norm. The new bent, however, sets the stage for faster profit growth. This year's expected EPS growth of 16% and next year's growth outlook of nearly 13% also probably represent the new norm.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Starbucks, and Walt Disney. The Motley Fool recommends eBay and recommends the following options: long January 2022 $1,920 calls on Amazon, short January 2022 $1,940 calls on Amazon, short October 2021 $120 calls on Starbucks, and short October 2021 $70 calls on eBay. The Motley Fool has a disclosure policy.

Stocks Mentioned

eBay Stock Quote
$43.94 (-2.79%) $-1.26 Stock Quote
$91.01 (-3.31%) $-3.12
Walmart Stock Quote
$151.65 (-1.02%) $-1.57
Target Stock Quote
$154.93 (-5.62%) $-9.23
Conagra Brands Stock Quote
Conagra Brands
$38.25 (0.34%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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