A lot of stocks have fallen sharply in recent months, but that doesn't make them cheap. There's a big difference between an investment that's less expensive than it once was and an investment that's actually a bargain.
I believe that right now, AT&T (T -1.21%), Camping World (CWH 2.60%), and ZIM Integrated Shipping Services (ZIM 8.75%) are genuinely cheap stocks that scratch some of my income and value investing itches -- and offset my typical preference for growth.
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The case for AT&T
Looks can be deceiving when it comes to Ma Bell. The beefy 9% yield that it's currently sporting is a ghost of the telecom's past. AT&T is in the process of spinning off its WarnerMedia segment, and when that process is completed later this year, the company will shave its payout by roughly a third. Its trailing earnings of $3.40 on an adjusted basis -- translating to a profit multiple of 6.8 -- is also more of a snapshot than a moving picture. Analysts expect it will be a slightly less profitable company on a per-share basis after it removes WarnerMedia.
The good news is that AT&T is still cheap on a forward basis, trading at a mere 7.1 times next year's earnings with a projected yield of 6%. Those estimates may prove conservative, as AT&T has beaten Wall Street's profit targets in each of its past four quarterly reports. The recent market sell-off found investors gravitating toward low-priced stocks with chunky quarterly distributions, but AT&T wasn't on that lifeboat. The stock is one bad trading day away from revisiting the 12-year low it hit in December.
The AT&T that will remain after it spins off its flashy content empire includes the iconic wireless carrier, and the future is bright on that front after industry consolidation and factoring in the inevitable migration to more valuable 5G connectivity. AT&T is hosting its Analyst & Investor Day later this week, hoping to convince investors that its future will be bright as it returns to its telecom roots. It won't have to convince you how cheap it is right now.
The case for Camping World
If you think AT&T looks cheap, Camping World looks even cheaper. The country's leading RV retailer has been rolling in more ways than one as folks snapped up motorhomes, campers, and other recreational vehicles at a rapid clip so that they could enjoy safer vacations during the pandemic.
Revenue rose 27% last year, which sent net income soaring by 87%. Camping World is now trading for 4.8 times earnings -- though that ratio would be slightly higher if you account for shares held by non-controlling interest holders that bump up the implied market cap. Camping World also increased its quarterly dividend to $0.625 last month, giving it a yield of 11.8% at current share prices.
Business should slow from here, and even last year, most of the top-line gains came from the likely temporary surge in prices for new and particularly used RVs. However, Camping World is a leader in a niche that just squeezed several years' worth of growth into the past two years. Its future is bright.
The case for ZIM Integrated Shipping Services
Can we get cheaper than Camping World with an even higher yield? Allow me to introduce you to ZIM Integrated Shipping Services. The Israel-based provider of international container shipping services is thriving in the new normal. Demand is high for imports everywhere, and transport services providers have all the leverage these days.
ZIM delivered the ultimate blowout financial performance on Wednesday morning. Revenue soared 155% to $3.47 billion in its latest quarter. Net income grew even faster, soaring 366% to $1.71 billion or $14.17 a share. You probably didn't think container shippers could sport 49% net margins, but it's a good time to own a fleet that moves products around.
It won't last. Volume of carried shipments rose just 7% year over year. It's an unsustainable 139% surge in ZIM's average freight rate that's most responsible for those explosive results. However, it's pretty impressive if we look back at 2021. The stock closed at $70.69 on Tuesday, and we now know it earned $39.02 for all of last year. You'll need a magnifying glass to see its trailing P/E ratio of 1.8.
The payout news is even more tantalizing. ZIM pays a variable dividend. It distributes roughly 20% of its net income as part of a quarterly distribution, and those $2.50 per share payouts every three months result in a current yield of 14.1%. However, it also distributes 30% to 50% of its net income via an annual dividend, and it just announced a special $17 per share distribution on that front. These sky-high yields aren't likely to continue, but ZIM's guidance for 2022 is encouraging. It's also investing in itself. It has placed an order for 36 new container vessels, and 75% of them will be dual-fuel ships powered by eco-friendly and cost-effective liquefied natural gas. The new container ships will arrive in 2023 and 2024, accounting for 40% of its capacity. There are big risks for investors when it comes to cyclical industries like container shipping, not to mention the added concerns that come with owning international stocks. Those risks should be easier to stomach for a stock that's this cheap.
