It's been quite a ride so far this year in the markets. Yet, there are solid companies with great track records that have seen their share prices drop despite solid financials. These are the stocks that make the best bargains. Instead of looking for gambles that could rise, better to find solid companies that have been swept up in the marketwide drop -- and they will, no doubt, stand out in time as solid value plays.
Three great examples are Seagate Technology (STX 0.17%), Alphabet (GOOG -1.96%) (GOOGL -1.97%), and Johnson & Johnson (JNJ -1.15%). While their growth rates may vary, all three stocks have been dependable gainers. Plus, each appears to be reasonably priced with P/Es of 24 or below. Let's take a closer look.
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Seagate has evolved in a good way
Computer memory and cloud-storage company Seagate Technology has been chugging along, producing solid quarters. Yet, the stock is down about 4% so far this year.
The company reported its 2022 second-quarter results on Jan. 26 and they were encouraging. Revenue totaled $3.12 billion, up 18.8% year over year; earnings per share (EPS) were $2.23 vs. $1.12 in the year-ago period; and the operating margin grew to 18.6%, up from 13.3%.
Seagate is in the process of turning its focus from hard-drive manufacturing to mass-storage data centers and storage as a service -- and this should provide plenty of growth opportunities in the years ahead.
Though the company's share price has risen 49% over the past year, the stock still appears to be a good deal, based on its price-to-earnings ratio (P/E) of 13.6 and forward P/E of 12.1, well below the industry average for computer services companies.
The company also rewards investors with a strong quarterly dividend, which it raised this year by 4.5% to $0.70 per share, giving it a yield of 2.49%, well above the S&P 500 average of 1.27%. Over the past 10 years, the company has raised its dividend by 180%. The stock presents a nice opportunity for savvy investors.
Alphabet stock is always a good bet
It's hard to argue against Alphabet, parent company of Google and Android. The stock has climbed 368% over the past 10 years and 215% over the past five years. The company blew away analysts with its 2021 fourth-quarter earnings report, released on Feb. 1. In it, the company reported revenue of $75.3 billion, up 32% year over year with EPS of $30.69, up from $22.30 in the same period in 2020. The company's strongest segments were Google Search with revenue of $43.3 billion, up 35.7% year over year, and Google Cloud, which brought in $5.5 billion, up 44.6% from the same period in 2020.
Despite those numbers, Alphabet stock is down nearly 10% for the year, following the general trend of the market. The stock is a whole lot more affordable than it was just a few months ago, down nearly $400 a share from its price in mid-November.
Besides all the financial momentum Alphabet has behind it, there's another reason to be bullish on the stock's future this year -- its impending 20-for-1 stock split on July 15. Experts will tell you there's no reason to think that will help the stock, because the company's overall value won't change. That's true, but it certainly makes the stock more affordable to smaller investors. Granted, there are plenty of brokerages that already allow investors to buy fractional shares, but most investors don't buy stocks in fractional shares and there's a big psychological factor at play.
It feels better to buy 100 shares of something than just one or two shares of a $2,600 stock such as Alphabet. Once the 20-for-1 split occurs, more retail investors will be willing to pay $130 to own Alphabet shares. Just look at what happened last summer to Nvidia when it had a four-way split on July 20. The graphics processing unit maker was about $751 a share the day before the split (which would have been $187 per share). A month after the split, it was up to $208 and it is now trading at around $232.
A prime opportunity for Johnson & Johnson
Johnson & Johnson stock is down 4.5% so far this year, but this is the type of solid company that is always worth buying on the dip. The healthcare giant is on track for its sixth consecutive year of revenue growth. Last year, the company reported annual revenue of $93.8 billion, up neary 14% year over year, and full-year EPS of $7.81, up 418% over 2020.
The company operates in three segments, led by pharmaceutical with $52 billion of sales in 2021, up 14.3% year over year. This is followed by medical devices with $27 billion in revenue, up 14.3% over 2020, and consumer health, which reported $14.6 billion in revenue, up 4.1%. The last segment is on track to be spun off as a separate company as early as 2023 -- and because of its lower growth rate, that should boost the remaining company's future EPS.
The company's medical devices sales were depressed in 2020 because many procedures were put off during the pandemic. But last year the segment bounced backed, helped by orthopaedics (which includes joint reconstruction, trauma, sports medicine, knee, and hip products).
The company is a prime example of why it is good to be big and diversified. Johnson & Johnson's immunology drugs (led by Stelara, a immunology drug that treats Crohn's disease, plaque psoriasis, psoriatic arthritis, and ulcerative colitis) brought in $4.5 billion last year while its oncology portfolio (led by monoclonal antibody Darzalex, used to fight multiple myeloma) brought in $3.8 billion. Plus, the company spent $4.7 billion last year on research and development and it has a huge pipeline of drugs with 53 therapies in late-stage trials.
The other benefit to Johnson & Johnson is its dependable dividend. The company has raised its quarterly payout for 60 consecutive years, including a 5% bump last year to $1.06 a share, giving it a current yield of 2.60%.
Different choices for different investors
There's little question that Alphabet offers the most growth and strongest total return of the three -- even without a dividend. Seagate Technology isn't far behind and, unlike Alphabet or Johnson & Johnson, it may be overlooked a bit by investors. At Seagate's current price, it seems to be the best bet of the three though all of them have great long-term prospects.