A good bargain stock isn't just an inexpensive one. There are plenty of stocks out there that are $10 or less or have a low price-to-earnings ratio (P/E). Both of those metrics can be deceiving, however. A lot of low-priced stocks deserve to be where they are, and many stocks with low P/Es are downtrodden because their futures aren't that bright.
The best bargains are the ones that will be good stocks to have and hold for the long term, yet are priced to sell right now. CRISPR Therapeutics (CRSP -4.14%), Microsoft (MSFT -0.66%), and Garmin (GRMN -0.79%) all have great long-term prospects and, for the moment, all are priced at a discount, down more than 20% this year.
1. CRISPR Therapeutics represents the future
Following the rest of the market, CRISPR Therapeutics is down nearly 20% this year as it trades at around $60. That leaves CRISPR with a P/E ratio of 15.7, under the biotech industry average of 20.3. But it's not its low P/E that's important but the potential.
CRISPR is a clinical-stage biotech company that uses the CRISPR/Cas9 gene-editing platform to create therapies to treat cancer, blood diseases, diabetes, and other diseases.
The company has a potential blockbuster, Exa‑cel, formerly known as CTX-001, that it is developing with Vertex Pharmaceuticals. The drug is in late-stage trials for the treatment of patients with transfusion-dependent beta-thalassemia (TDT) or severe sickle cell disease (SCD), two genetic blood disorders that can cause painful episodes because of malformed blood cells that cause blockages in the bloodstream.
The drug works by editing a patient's own stem cells. It is a single-dose therapy that could significantly help the 300,000 people who are born worldwide each year with SCD and the 80,000 with TDT. CRISPR and Vertex said they anticipate regulatory filings for Exa-cel by the end of this year.
Exa-cel is only the tip of a large pipeline for CRISPR Therapeutics, which has several therapies in early-stage trials. Those trials include VCTX210 to treat type 1 diabetes, as well as three immuno-oncology therapies: CTX-110 to treat certain B-cell cancers, CTX-120 to treat multiple myeloma, and CTX-130 to treat solid tumors and blood cancers.
The company reported $178,000 in collaboration revenue in the first quarter and a loss of $179.2 million in the quarter, which deepened from the loss of $113.2 million in the same period last year. However, it is in a strong cash position, with $2.4 billion, allowing it to finance the development of its growing pipeline.
2. Microsoft is a dependable choice
Microsoft is down more than 27% this year, trading at a new 52-week low. That drop has a lot more to do with the market's current distaste for tech stocks and very little to do with Microsoft's fundamentals, which, if you look at its 2022 fiscal third-quarter earnings, remain strong.
The company reported $49.4 billion in revenue, up 18% year over year; net income of $16.7 billion, up 8% over the same period in 2021; and diluted earnings per share (EPS) of $2.22. Microsoft's cloud-based services drove much of the growth, with Office commercial products and cloud services revenue up 12%, Office consumer products, and cloud services up 11%, and dynamics products and cloud services up 22%. The company's intelligent cloud revenue was up 26%, led by 29% growth in server products and cloud services and 46% by Azure and other cloud services revenue gains.
The only cloud on the horizon is that growing inflation and a rising dollar might cut into the company's future sales. It revised its 2022 fourth-quarter guidance downward, as noted in the chart below.
Source: Chart by author. Microsoft quarterly filing.
Microsoft also said it now expects EPS to be between $2.24 and $2.32, down from between $2.28 and $2.35. A lowered estimate doesn't thrill investors, but if you look carefully, all of those numbers would represent a stronger quarter sequentially and year over year.
The company also has a dividend, unusual for a fast-growing tech company. Microsoft raised its dividend in fiscal 2021 by 11% to $0.62 per quarterly share, and last year was the 12th consecutive year the company has boosted its dividend. That dividend represents a current yield of 1% and is considered safe with a 24.4% payout ratio.
3. Looking for a bargain? Try Garmin
Garmin sells navigation, communication, and information devices that use the Global Position System (GPS) technology, including everything from fitness trackers to marine, automotive, and aviation GPS systems. Its stock is down more than 28% this year, sending its P/E to 17.5.
The company did well during the pandemic, as its fitness trackers became big sellers. While sales of fitness trackers are down, the company is seeing growth in other areas as it operates in five segments: fitness, outdoor, aviation, marine, and auto. The company has grown annual revenue for six consecutive years, and over the past five years, the company has increased annual revenue by 59.6%.
In the first quarter, Garmin reported revenue of $1.2 billion, up 9% year over year, though EPS was $1.09, down 4% over the same period in 2021. Despite fitness sales being down 28%, outdoor sales were up 50%, marine was up 21%, and auto rose 11% compared with the first quarter of 2021. The company said the reason earnings dropped was due to the impact of high freight costs and currency shifts, two factors that will likely moderate. Garmin has said it anticipates annual revenue of $5.5 billion, representing a growth of 8% over 2021 annual revenue.
The Swiss company raised its dividend toward the end of last year by 9% to $0.73 per quarterly share, the fifth consecutive year it has increased its dividend. That equals a yield of roughly 3%.
